Probe into overdraft fees that cost twice as much as a payday loan

WWW.DAILYMAIL.CO.UK/MAC BANKS are to be investigated for charging some current account customers more for their overdrafts than it would cost to take out a payday loan. Customers who go into the red are hit with ‘very high, complex and opaque charges’, t he Fi nancial Conduct Authority warned yesterday.

Despite efforts by the Office of Fair Trading (OFT) to control excessive charges, the FCA said many customers ‘may still be paying too much’.

It said lenders were making huge amounts from ‘consumers’ lack of understanding, confusion and limited attention’.

Customers owe £8billion in overdrafts to banks and building societies, and 15 per cent of those with an overdraft are permanently or usually overdrawn.

The consumer group Which? said Halifax and Santander were among the main culprits. Customers using the Halifax Reward c urrent account and t he Santander Everyday Account pay £100 in charges for going £100 into an unauthorised overdraft for a month, equal to an annual percentage rate of 1,200 per cent.

But it would cost £37 to borrow £100 from payday lender Wonga over the same period.

Which? also found that customers borrowing £100 over a month with Halifax within an agreed overdraft would pay £30 for the period, giving an effective APR of 356 per cent.

Following an investigation by the OFT, banks have changed overdraft levies from a more traditional interest rate to a daily fee, typically of £1 a day or more, saying it is easier to understand.

But the FCA, which took over regulation of consumer credit from the OFT this month, is concerned that the simpler fees ‘may be a mechanism by which providers are increasing revenue from authorised overdrafts’.

It will investigate fees for authorised and unauthorised overdrafts, as well as how banks set overdraft limits and how they reduce and increase them for customers.

Banks could be fined if the FCA finds any wrongdoing, and could be forced to introduce measures to protect customers, such as texts to those near their limit.

Christopher Woolard, of the FCA, said: ‘Just about everybody

‘We want charges made clearer’

who banks can have access to some sort of overdraft, whether they’ve signed up for it or not. This market is huge, and with overdrafts bolted on to over 30million current accounts, we want to make sure it is working well for consumers.’

Overdrafts are lucrative for banks, which claim they need the fees to provide so-called free current accounts to customers who remain in credit. The OFT says banks are squeezing nearly £2billion a year from customers with unauthorised overdrafts.

Which? executive director Richard Lloyd said the FCA investigation was a ‘welcome first step towards putting people back in control of their credit’.

He added: ‘We have long called for regulators to clamp down on excessive charges that hit hardest people struggling with their finances. With some unauthorised overdrafts as costly as payday loans, we want charges made clearer so people can compare borrowing options more easily.’

The FCA probe follows a series of banking scandals, including the mis-selling of payment protection insurance and complaints over f ee- charging packaged accounts offering ‘perks’ that some customers cannot use.

Eric Leenders, of the British Bankers’ Association, said: ‘Millions of people find overdrafts an easy way to borrow money, more flexible and convenient than a loan. Overdraft charges have plummeted in recent years.’