Banks are charging more for rip-off overdraft fees than payday loans companies.
Consumer group Which? compared the cost of borrowing £100 for 30 days in an unarranged overdraft with 16 high street banks versus borrowing via a payday loan, finding that unauthorised overdraft fees can cost borrowers up to seven times more.
As reported by the The Mirror, 13 of the banks surveyed were found to charge more than payday loan lenders.
You could write Off Your Unaffordable Debt
Which banks charge the most for unarranged overdraft fees?
Santander is the worst of the bunch, registering overdraft fees which are almost 7.5 times higher and £155 more expensive, charging customers £179 over 30 days.
TSB, HSBC and First Direct are more than six times higher, charging between £150 and £160 each.
RBS, Natwest, 6Smile, Co-operative Bank, Yorkshire Bank and Clydesdale Bank all charge fees of five times or more.
What do the experts say?
Gareth Shaw, Which? money expert, said: “It’s alarming that the majority of banks are still allowed to charge more than payday loan firms through these rip-off overdraft fees.
“These extortionate fees can cost thousands of pounds a year, hitting those who can afford it the least.”
The group are now calling on the Financial Conduct Authority (FCA), which agrees charges are often “too high”, to impose limits.
Other groups have also backed scrapping unauthorised overdraft fees, and a number of MPs are also calling on the FCA and the Government to impose a cap.
New research from @WhichUK reveals that unarranged overdrafts are currently up to 7.5x more expensive than payday loans. Banks are getting away with ripping their customers off with exorbitant unarranged overdraft fees. We are calling on @FCA and Govt to introduce a cap. pic.twitter.com/p1koMVyuY8
— Rachel Reeves (@RachelReevesMP) May 23, 2018
Peter Tutton, Head of Policy at StepChange Debt Charity, added: “Overdrafts are the second most common type of debt our charity deals with, leaving many at risk of falling into persistent problem debt by entering a cycle of using their overdraft from month to month.
“They are meant to be short-term, but our evidence shows that they can all too easily trap people in expensive and long-term cycles of persistent debt. Fundamental reform is needed.”
The FCA capped payday loan charges in 2015, meaning that under the new, stricter rules it would cost £24 for a £100 loan over 30 days via a payday lender.
What do the banks say?
Craig Bundell, TSB’s Personal Current Accounts Director said: “At TSB, we’re committed to helping customers borrow well. Many customers find an overdraft helpful in managing their money.
“However, overdrafts are not designed to provide a long-term loan. A lack of transparency in the market and an understanding of how to use them can make them an expensive source of borrowing for some customers.”
An HSBC spokesperson added: “Comparing the cost of an arranged payday loan with an unarranged overdraft is not comparing like with like.
“An arranged or extended overdraft costs customers far less – for example, with £100 in overdraft for 30 days, a customer would pay £1.50 – this is much less than the £24 for a payday loan.”
In more positive news, Lloyds Banking Group has scrapped unarranged overdraft fees, and was found to be £19.80 cheaper than a payday loan at just £4.20 to borrow £100 for 30 days.
Santander have also said they’ll be reducing unauthorised overdraft charges in July.