Pay off Xmas debts now – or face 40% rate rise pain

Daily Mail - - News - By James Salmon As­so­ciate City Ed­i­tor

MIL­LIONS of house­holds have been warned to pay off their Christ­mas debts as soon as pos­si­ble as banks pre­pare to hike over­draft rates to 40 per cent.

High street lenders are poised to im­pose pun­ish­ing levies on those who slip into the red as part of a rad­i­cal over­haul by the City watch­dog which is de­signed to make over­draft fees fairer and more trans­par­ent.

The regime comes into force in April – although Na­tion­wide has al­ready in­tro­duced a new rate of 39.9 per cent for ar­ranged over­drafts.

HSBC has an­nounced it in­tends to do the same from March 14. The new rate, which is al­most as ex­pen­sive as a pay­day loan, will also be ap­plied by its sub­sidiaries First Di­rect and M&S Bank.

This has fu­elled fears that many may still be pay­ing off Christ­mas debts as the changes come in. Other banks are ex­pected to make an­nounce­ments in the com­ing weeks to give cus­tomers time to pre­pare for the changes.

Some are ex­pected to charge higher over­draft fees to cus­tomers with lower credit scores – em­u­lat­ing plans an­nounced by dig­i­tal bank Monzo re­cently. Its cus­tomers will be charged 19 per cent, 29 per cent or 39 per cent.

It comes af­ter a sur­vey found that al­most five mil­lion Bri­tons are head­ing into the New Year with more than £10,000 of debt.

Baroness Ros Alt­mann, for­mer work and pen­sions min­is­ter, said: ‘These rules are pun­ish­ing peo­ple who only use their ar­ranged over­drafts and are more re­spon­si­ble with their finances. The bot­tom line is that these in­ter­est rates are lu­di­crously high at a time when banks can bor­row at al­most zero.

Banks will be prof­i­teer­ing from cus­tomers, many of whom have to bor­row to pay for Christ­mas. ‘ It is re­ally im­por­tant that peo­ple pay off their over­drafts as soon as pos­si­ble be­fore they are hit by these ex­traor­di­nar­ily high in­ter­est rates.’ The Fi­nan­cial

Con­duct Author­ity’s shake-up in­cludes stop­ping banks and build­ing so­ci­eties from charg­ing higher prices for unar­ranged over­drafts than for ar­ranged over­drafts.

The new rules from April 6 2020 will also ban fixed fees for bor­row­ing through an over­draft, call­ing an end to daily or monthly charges.

In­stead, providers will be re­quired to ad­ver­tise over­drafts with an APR (an­nual per­cent­age rate) to help cus­tomers shop around.

Banks have been or­dered to do more to help those who are strug­gling with their finances, mean­ing those who breach their over­draft limit will be bet­ter off when the changes come into force. HSBC is set to scrap its £5 daily fee for those who fall deep into the red and stray into their unau­tho­rised over­draft.

This is up to four times what HSBC cus­tomers pay at the mo­ment, with rates vary­ing be­tween 9.9 per cent and 19.9 per cent.

It means it is now far cheaper for HSBC cus­tomers to use a credit card rather than their ar­ranged over­draft.

But the bank has in­sisted that seven in ten peo­ple who use their over­draft will be bet­ter off un­der the new sys­tem.

‘Pun­ish­ing peo­ple’

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