Consumer Watchdog Call for Crack Down on Overdraft Charges

October 16, 2013

Luke-Notley small (Custom)Consumer group Which? is urging stronger action from the Government to “clean up” the credit market after revealing that alternative forms of credit can be as expensive as payday loans.

 

Whilst the payday lending industry has recently come under heavy criticism for encouraging people to roll over debts, Which? has found that going overdrawn can be as “eye-wateringly” expensive as taking a payday loan.

According to Which?, 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 a month with a payday loan company would cost between £20 and £37.

The research showed that, as with rolling over a payday loan, consumers can “rack up” sky high default charges if they use an unauthorised overdraft, and be hit with high interest and charges if they stay in their unauthorised overdraft for long periods.

Which? is calling for the Financial Conduct Authority  (FCA) to ban excessive charges across the entire consumer credit market so that default charges reflect lenders actual costs, as well as seeing a cap on default charges.

Which? executive director Richard Lloyd 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.

“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,” he said.

The FCA recently announced a number of measures it plans to impose to improve the whole consumer credit market when it takes over in 2014, which include limiting the number of times payday lenders are allowed to roll over loans to two, and performing mandatory affordability checks on borrowers.

FCA chief executive Martin Wheatley warned this month, “I’m putting payday lenders on notice: tougher regulation is coming and I expect them all to make changes so that consumers get a fair outcome. The clock is ticking.”

Commenting on the lofty overdrafts, 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 we would ever recommend,” he said