Sky-high overdraft fees worse than payday loans
URGENT action is needed to tackle “sky-high” unarranged overdraft fees, which can cost several times the amounts payday lenders are allowed to charge, according to Which?
The consumer group said that despite raising the alarm over the high costs which can come with unauthorised overdrafts in 2016, it is concerned that “not enough has been done to protect consumers from these sky-high fees”.
Which? said some unauthorised overdrafts can still cost around seven times more than a payday loan.
It compared the cost of borrowing £100 for 30 days in an unarranged overdraft across 16 high-street banks with borrowing the same amount for the same length of time through a payday loan. It said overall, 13 of the banks investigated charged more than a payday loan company, and some charged considerably more.
The Financial Conduct Authority (FCA) previously capped payday loan charges, meaning that the cost of a loan in our scenario would be £24.
The FCA has been looking into the high-cost credit market generally and is due to release its findings in a review next week.
Which? said that, along with 84 MPs, it is demanding the FCA takes urgent action to “end this unfair practice” by restricting unarranged overdraft charges to the same level as arranged overdrafts. 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 ripoff overdraft fees. These extortionate fees can cost thousands of pounds a year, hitting those who can afford it the least.
“The regulator cannot drag its heels any longer. We must see urgent action to restrict these charges, bringing them into line with arranged overdraft fees to finally end this unfair practice.”
A spokesman for trade association UK Finance said: “The industry is committed to helping customers with their everyday banking and an overdraft can be a short-term solution to smooth cashflow.
“An unarranged overdraft might arise where customers have miscalculated their finances, although we would always encourage them to contact their bank to arrange an overdraft and minimise costs.
“Text alerts can help customers take action if they are going overdrawn and lenders are working on a series of measures to help those who regularly use their overdraft.”
An FCA spokesman said: “We are concerned about the way the overdraft market works for some people.
“Often the fees are too high and charges can be unreasonable. We think the market may need fundamental reform and we have questioned the role of unarranged overdrafts should play in a modern market.
“We’ll set out our findings on May 31, including proposals to address some of our concerns.”