According to a new study by the consumer association, overdrafting a checking account without permission can now be up to four times more expensive than taking out a payday loan Which?
The organization said its findings showed regulators had to take action against “punitive” unauthorized overdraft fees that harmed vulnerable customers.
Which? suggested that unapproved overdrafts are now more expensive than payday loans, notorious for their high interest rates: Wonga charges a representative APR of 1.509%.
However, the UK’s largest consumer organization said that unapproved overdrafts can be “much more expensive” when people borrow on short notice – up to 12.5 times more if the period in question is only 24 hours.
This is related to the fact that in January 2015 the Financial Conduct Authority (FCA) Price caps introduced for payday loans, with interest and fees limited to 0.8% per day of the borrowed amount.
This means that someone who takes out a £ 100 loan for 28 days and repays it on time will never pay more than £ 22.40 in fees and charges.
However, without such caps in the checking account market, if that person had borrowed the same amount from a High Street Bank’s unauthorized overdraft, they would face a £ 90 bill with NatWest and its parent company, the Royal Bank of Scotland.
If a NatWest and RBS customer have an unauthorized overdraft of more than £ 10, they will be charged a fee of £ 6 for each day they remain in that position, up to a maximum of £ 90 per “Billing Cycle”. A charging period runs from month to month.
Since the fee structures vary from bank to bank, fees vary when customers are illegally red. At Barclays the corresponding cost would be £ 29.75, while at Santander it would be £ 67. In the meantime, Lloyds, HSBC and TSB would charge £ 80 each.
A spokeswoman for which? said fees could be even higher if interest payments or possible fees for unpaid items were included, or if the money was borrowed over two monthly loading periods, as the maximum fee was related to loading time rather than length of borrowing.
Which? said that when it came to borrowing £ 100 for just one day, the fees imposed by some high street banks were 12.5 times what payday lenders were allowed to charge. The FCA cap for a day would be 80p compared to £ 10 for the classic Lloyds account.
Which? The spokeswoman said she asked that unauthorized overdraft fees be set at the same level as approved overdraft fees and that the FCA review overdraft fees associated with other forms of credit.
Alex Neill, which one? Director of Policy and Campaigns, said, “People with a deficit in their finances can face much higher fees from some of the major major banks than from payday loan companies. The regulator has shown that it is ready to take tough action to root out unscrupulous practices in the payday loan market and must now address punitive, non-negotiated overdraft fees that are causing significant damage to some of the most vulnerable customers. “
RBS response to Which? was that she encouraged all of her clients to get in touch if they wanted to enter unplanned overdraft, regardless of the amount or duration. It added, “This is an expensive method of borrowing and there could be a number of alternative solutions, such as setting up an arranged overdraft, and the cost is significantly less. Our Act Now Alert service would alert the customer that they are in an unarranged borrowing situation and that action should be taken. “
Lloyds’ response was that “the vast majority” of its customers who used their overdrafts stayed within their planned limit in an average month.