Banks’ rip-off unarranged overdraft fees are WORSE than a payday loan
Which? named Santander as the worst offender, adding £155 onto £100 borrowed over 30 days
BORROWERS are being charged more interest by banks for unauthorised overdrafts than if they took out a payday loan, according to Which?.
The consumer group has called for the city watchdog to tackle the "rip-off" fees.
It found that the cost of borrowing £100 for 30 days in an unarranged overdraft across 16 high street banks can be up to seven and half times higher more than a payday loan, which notoriously charge high rates of interest.
It named Santander as the worst offender, adding £155 onto £100 borrowed over 30 days.
While a customer of TSB would end up paying six and half times more than a payday loan.
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.
It calculated that a cap on charges would reduce the cost of an overdraft to £24.
Why we want to Stop The Credit Rip-Off
WE never want you to pay more than double the amount you've borrowed - whether it's for a new sofa or a loan to help pay your bills.
That's why The Sun has launched a campaign calling for a cap on the total cost of rent-to-own loans and doorstep lending at double the original price or loan amount.
A similar cap was introduced for payday loans in 2015 and since then the number of people struggling with unmanageable debts to those lenders has more than halved, according to Citizens Advice.
People on the lowest incomes, living in the poorest places, are paying a poverty premium – up to 7 million people have resorted to high-cost credit, according to the Department for Work and Pensions.
People whose wages or benefits don't stretch far enough need to borrow from rent-to-own or doorstep lenders to help pay for things such as an unexpected bill or to furnish their homes.
These come with exorbitant rates of interest – more than 1,500 per cent in some cases of doorstep lending.
It is scandalous that one mum who borrowed cash to help keep a roof over her family's head ended up paying back over THREE times the original amount.
It's time to stop the credit rip-off.
Here's what we demand:
Rent-to-own
- Cap on all repayable costs at double the item list prices (including fees, add-ons and interest)
- Ban on incentives for all sales staff
- Ban on discounts for existing customers to tempt them into more credit
- Companies to publish example interest rates and costs on all payment options
Doorstep lending
- Cap at double the original amount borrowed
- Stricter affordability checks
- Ban on discounts for existing customers to tempt them into more credit
In 2014, Financial Conduct Authority (FCA) introduced a cap on payday loans, which could save customers of high cost credit thousands of pounds in interest repayment charges, as highlighted by the Sun's Stop The Credit Rip-Off campaign.
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 rip-off 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.
WHAT ARE THE BEST WAYS TO CUT YOUR OVERDRAFT COSTS?
THERE are a few ways, and which suits you will depend. Here are a few options advised by Money Saving Expert's Helen Saxon
Spend less each month – do a proper budget and have a look at what you’re spending on.
Could you cut your morning coffee, or go down a brand at the supermarket?
Or, are you paying too much on your bills – if you haven’t switched energy, insurance and broadband recently, then it’s likely you could save £100s or even £1,000s over a year.
Move your bills – this can be dangerous if you’re not disciplined, but if you move your bills to just before payday rather than just after, many will be in credit (or less in the red) for less of the month, meaning you’re charged less for the overdraft. But – remember those bills are coming out, so don’t treat it like you’ve extra money to spend.
Move bank account - There's plenty to choose from and you can end up saving money.
Shift your overdraft on to a money transfer card – and don’t build it back up again. We cover this below.
Try setting up "pots" - Sort your cash at the start of each month, so you have a bills pot, a spending pot etc. Use this technique to make payments to your overdraft, eg £100 a month, treating it like any other bill.
"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.
Peter Tutton, from StepChange Debt Charity, said: “Overdrafts are the second most common type of debt our charity deals with, leaving many at risk of falling into persistent problem debt by entering a cycle of using their overdraft from month to month.
"They are meant to be short-term, but our evidence shows that they can all too easily trap people in expensive and long-term cycles of persistent debt."
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.
MOST READ IN MONEY
"We think the market may need fundamental reform and we have questioned the role 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."
The FCA spokesman said any proposed changes to overdrafts "must look at the wider banking sector to prevent harm to consumers without impacting on people who rely on overdrafts for normal, day-to-day banking".
Santander told The Sun that it will be removing unarranged overdraft fees for four million of its customers on packaged bank accounts. It will be reducing the cap for those on its free bank accounts to a maximum of £50, down from £95.
These changes take effect from July 10.
Craig Bundell from TSB said: "At TSB, we’re committed to helping customers borrow well.
"A lack of transparency in the market and an understanding of how to use them can make them an expensive source of borrowing for some customers."
In February new rules forcing banks to alert customers via text message before they slip into the red came into force.
HOW TO GET FREE HELP IF YOU'RE IN DEBT
IF you're worried about problem debt then you can get free advice from charities.
These include Citizens Advice, StepChange and National Debtline.
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