Bank overdrafts cost more than payday loans: UK consumer group report
09 Jul 2016
High overdraft charges meant ''borrowing'' £100 from some high street banks could cost four times as much as lending from a payday loan company, a Which? report revealed.
The consumer group considered fees charged by high street lenders when customers slipped into unarranged overdrafts and found those needing as little as £100 were being charged up to 12 times more by major high street banks than the amount the Financial Conduct Authority (FCA) allowed payday lenders to charge for borrowing over the same period.
Which? compared the cost of borrowing £100 for 28 days and found that a number of banks charged as much as £90, which was four times the maximum charge of £22.40 on a payday loan.
RBS customers faced costs of £90, while customers at Lloyds, HSBC and TSB face paid £80 for the same service.
The finding comes after competition watchdogs recently proposed that banks limit unauthorised overdraft charges. Cost caps were already in place on payday loans over fears of indebtedness of high numbers of payday loan customers.
Alex Neill, director of policy and campaigns at Which?, 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 Telegraph reported.
According to the consumer group, unarranged overdraft borrowing charges from some high street banks were 12 and-a-half times higher than the FCA cap if consumers borrow £100 for one day. The FCA cap for one day was 80p, as against the £10 for the Lloyds Classic Account or TSB Classic Account.
Unarranged overdrafts had already come under the spotlight recently with the Competition and Markets Authority (CMA) proposing that banks set their own monthly unauthorised overdraft charge cap, which they would need to show clearly.