Borrowers punished in overhaul of overdrafts

MILLIONS of bank customers could see the cost of borrowing double over the next few weeks.

HSBC, Nationwide and Metro are among those named and shamed in a report into the impact of a major overhaul of overdraft fees.

The Financial Conduct Authority has told banks to ditch swingeing penalties for customers who breach their borrowing limits without agreement. From April 6 they will have to introduce blanket fees, charging the same for arranged and unarranged overdrafts.

But an investigation by Moneyfacts has found that some lenders appear to be trying to claw back the money they will lose by ratcheting up the cost of borrowing for those who rely on their arranged overdraft but never stray over the limit.

Others – including Barclays, Santander, Halifax and Virgin Money – are cutting the cost of borrowing across the board.

Moneyfacts’ Rachel Springall said: ‘It’s both shocking and disappointing to see that current account providers will charge high rates of interests in the aftermath of extortionate usage fees being scrapped, with some even doubling the charges for customers.

‘The much-needed overhaul of the charges has been a double-edged sword for some.’

Its analysis compared the cost of borrowing £500 for 30 days in an arranged overdraft under the old regime and under the new regime.

First Direct, part of HSBC, has hiked the arranged overdraft from 15.9 per cent to 39.9 per cent – pushing the cost of borrowing £500 for a month from £3.05 to £7. This equates to a rise of 129 per cent.

HSBC said: ‘Changes are being made across the industry to make overdrafts more transparent and easier to understand and our changes.

‘For seven in ten customers who use an overdraft it will be cheaper or cost the same.’

The FCA said the shake-up would ‘result in a fairer distribution of charges, helping vulnerable consumers’.

‘Double-edged sword’