SOME banks are charging customers more than payday lenders to borrow money – up to £100 in charges and interest to borrow £100 for one month – a study shows.
The charges levied by high street banks are “eye-watering”, campaigners said, and consumer groups are now calling on the UK government to extend a clampdown on excessive charges aimed at payday lenders.
The research found that borrowing £100 for 31 days will cost £30 with a Halifax authorised overdraft or £20 with some Santander accounts, while borrowing the same amount for about a month with a payday loan firm such as Quickquid or Wonga costs between £20 and £37.
For people using the Santander Everyday account and Halifax Reward current account, it can cost £100 in charges for going £100 into an unauthorised overdraft for a month, the research said.
Although RBS Select account customers face a fairly modest charge of £8 for borrowing £100 for a month in an authorised overdraft, they face charges of £90 on an unauthorised overdraft of the same amount. Bank of Scotland Classic account customers face charges of £7 and £82 respectively. In contrast, Wonga.com charges £37 to borrow the same amount for 30 days.
The payday lending industry, which will come under tougher regulation next year, has been heavily criticised in recent months for encouraging people to roll over their debts so that the original cost balloons.
But consumer group Which? said going overdrawn could be as “eye-wateringly” expensive as taking a payday loan and, in a similar way to rolling over payday finance, people can rack up “sky-high” default charges if they slip into an unauthorised overdraft.
The Financial Conduct Authority (FCA) watchdog recently announced a raft of measures it plans to impose to improve the whole consumer credit market, including limiting the number of times payday lenders are allowed to roll over loans to two and forcing them to put “risk warnings” on their advertising.
Before a payday firm agrees to roll a loan over, it will have to explain to its customer how the costs will escalate and give free debt advice under the FCA’s plans.
The £2 billion sector is under investigation by the Competition Commission, which is due to give its findings next year.
Richard Lloyd, Which? executive director, said: “The government and regulators have rightly focused on the scandal of payday lending, but they must not lose sight of the urgent need to clean up the whole of the credit market. High street bank overdraft fees can be just as eye-watering as payday loans.
“Consumers need the credit market to work competitively. It’s time to clamp down on excessive charges and irresponsible lending, and to make sure borrowers are being treated fairly whatever form of credit they’re using.”
Guy Anker, of Moneysavingexpert.com, said the report came as no surprise.
He said: “The cost of exceeding your bank overdraft limits can be massive and in some cases even worse than payday loans. But neither should be seen as a good thing. They really are the loan of last resort.
“If you’re in trouble, there are other measures you can take before you go to a payday lender. Speak to your bank if you’re going to go over your overdraft. If this is happening all the time, it’s probably time you looked at your finances.”
Halifax is planning to open new branches in Scotland. A spokeswoman for the bank said: “The vast majority of our customers don’t use their overdraft facility in an average month, and those that do only go overdrawn for a few days, usually at the end of the month. Therefore, if someone was in their unauthorised overdraft for three days, they would pay a charge of £15.
“If customers are in their unplanned overdraft for more than seven days, then we would contact them to discuss alternative repayment options, and the daily fee may be suspended, depending on the resolution.”
Anthony Browne, British Bankers’ Association chief executive, said overdraft charges for customers had fallen “significantly” in recent years.
He said: “The Office of Fair Trading estimates that customers are now up to £1bn better off due to reductions in these fees.
“The higher figures quoted by Which? are based on extreme examples of unauthorised overdrafts. This is not a form of borrowing that we would ever recommend.”
He said customers should take advantage of rules recently introduced to make current account switching easier to choose an account that suits their needs.
Russell Hamblin-Boone, chief executive of the Consumer Finance Association (CFA), which represents major short-term lenders, said its members were “responsible payday lenders who are committed to transparent communication with no hidden charges”.
He said: “People want and need clear, jargon-free information to help them make better financial decisions.
“Indeed, our own research shows that three-quarters of people would prefer to compare financial products in pounds and pence, and often have no idea how much it costs them to borrow money, because charges are hidden. So it is right to level the playing field.”
Mr Hamblin-Boone said CFA members were “resolutely committed” to regularly reviewing standards and driving out irresponsible lending practices in the industry.