Banks Overdraft Fees Higher Than Interest on Payday Loans


A Daily Mail investigation has revealed that interest and charges levied after taking out an unauthorised overdraft from a high street bank could amount to the equivalent of an annual percentage rate (APR) of 46 million per cent.

Lloyds TSB, which is 41% owned by the taxpayer, was found to be the worst offender charging customers £85.95 over ten days on an unauthorised overdraft of £200.

This amounts to an equivalent APR of 46,450,869 per cent. Controversial payday loan companies such as QuickQuid and Payday UK which attract negative press for the fees they levy on their customers charge around £25 to borrow £100 for a fixed period of time. Wonga's representative APR is 2689 per cent and it can charge as little as £8 to borrow £100.

Mike Regnier, current accounts director for Lloyds TSB, told the Mail: ‘We offer our customers a number of services to help them manage their money effectively and prevent them from accruing fees and charges on their account, such as free text alerts that warn customers when they are about to go over their limit.”

The Office of Fair Trading compels payday loan companies to clearly state the annual equivalent cost of borrowing to potential customers whereas banks do not have show equivalent rates on charges and interest incurred as a result of becoming overdrawn.

Although customers do not end up paying these rates in practice as APR is a measure of the cost of borrowing if it continued over the course of a year, the investigation proves that borrowing from a payday loan company to stay in the black can be cheaper paying the fees banks charge for taking out an unauthorised overdraft.

A spokesman for Consumer Focus told the Mail that the payday loan industry is providing a service that should be coming from the banks: ‘These products are controversial, but we don’t want to see them banned. We need banks to provide alternative short- term credit for cash strapped consumers.

 

Read more at the news source: totallymoney.com

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