Overdrafts 'cost more than payday loans'
Everyone knows the worst people in the world are payday loan companies. Everyone and their aunt has complained about them and know just how tricksy they are, and frankly, life ruining.
Which! Have been looking into this, and in a report have shown that some banks are charging customers a lot more in feed than payday lenders do.
The watchdog looked at unarranged overdraft charges (you know, when you go over your overdraft) and found that consumers needing as little as £100 could end up being charged 12 times or more by major high street banks, than the amount that payday loan companies are allowed to charge by the Financial Conduct Authority (FCA).
Which! Looked at the cost of borrowing £100 for 28 days, and they saw that charges at some high street banks were as much as £90, which is considerably more than the £22.40 maximum charge on a payday loan.
Some RBS customers face costs of £90, while those at Lloyds, TSB and HSBC are looking at £80.
Unarranged overdrafts have already come under the spotlight recently as the Competition and Markets Authority (CMA) has proposed that banks should set their own monthly unauthorised overdraft charge cap, which they would have to show clearly.
It is hoped that this would encourage banks to compete to drive down the costs, rather than having a single charge cap. But Which? Has argued the proposals are unlikely to make much of a difference as many banks already put their own caps on charges.
Alex Neill, director of policy and campaigns at the watchdog said: ‘People with a shortfall in their finances can face much higher charges from some of the big high street banks than they would from payday loan companies.
The regulator has shown it’s prepared to take tough action to stamp out unscrupulous practices in the payday loans market, and must now tackle punitive unarranged overdraft charges that cause significant harm to some of the most vulnerable customers.’
RBS responded with a statement: “We encourage all of our customers to contact us if they are going to enter unarranged overdraft regardless of the amount or the length of time.
“This is an expensive method of borrowing and there could be a number of alternative solutions such as putting an arranged overdraft in place, and the costs are considerably less.”
The British Bankers’ Association added: “Across the board overdraft charges have plummeted since 2008, with consumers saving up to estimated £928 million over the past five years.
“Banks are helping customers compare account charges in a variety of ways, from making them easier to understand to providing useful online calculators and mobile apps.
“They also itemise charges on bank statements and use text alerts to communicate important account information instantly.
“If a customer thinks they might go overdrawn, they should speak to their bank to arrange an overdraft to keep costs down.”