When people face a shortfall in their finances, they probably turn to their bank first. But it might surprise you to know we’ve found unarranged overdrafts that cost more than a payday loan.
Have you ever been in the situation where this month’s budget is looking fairly rosy just up to the moment when the car fails its MOT and you’re hit with a huge unexpected bill for repairs. In this situation, dipping into an unarranged overdraft can be costlier than you might expect.
Not everyone has a savings account buffer to help them deal with the unexpected costs, and these people face much higher charges from some high-street banks for using an unarranged overdraft than they would if they took out a payday loan.
When we took a look at the cost of borrowing £100 for 28 days what we found was that charges from some high street banks were as high as £90. This is up to four times higher than the maximum allowed charges of £22.40 on a payday loan.
But that’s only half the story. You’ve been sharing your experiences with surprise charges here on Which? Conversation.
Overdraft charges can add up quickly, as Peter Lloyd knows all too well:
‘I went over the overdraft limit when the bank put on its monthly charge, it cost me about £100 in total. They finally sent me a letter telling me of the penalties after the full seven days’ charges had been added; if they can let you know then, why not earlier? If they had notified me on the internet, I could have avoided all the charges. What is internet banking for?’
Matthew shared his feelings of hopelessness:
‘I’ve been stuck in an overdraft trap for a long time now. The charges mean I can never get out of it.’
Unreasonable and unexpected
Charges for an overdraft can seem punitive and unfair, as experienced by J Kelly:
‘The first time I went overdrawn, I wasn’t aware I had one. I was told the new card worked the same as the old card, but that this one was applicable for online banking. So I was quite surprised when I first unknowingly went overdrawn by about 11p, then got a statement a few days later for a £15 charge at the time. It hardly seems fair for such a petty amount.’
And as Nick Fletcher explains, there are vulnerable people being exploited by these charges too:
‘My son in his first years after university whilst still jobless and even today can match several dozen times that story of £90 fee for £2 overdrawn. In the world of banking it is often the poorest who end up subsidising the well-off. This reflects the totally distorted view of life and living that most banks have entrenched within their mean and nasty financial policies and objectives.’
Calling for fairer charges
We’re calling for a crackdown on unarranged overdraft charges as we find that consumers who need money in an emergency face higher charges for using an unarranged overdraft than they would if they took out a payday loan. We think unarranged overdraft charges should be set at the same level as arranged overdraft charges.
The Financial Conduct Authority has shown it’s prepared to take tough action to stamp out unscrupulous practices in the payday loans market, and it must now act to tackle punitive unarranged overdraft charges.
Have you been surprised by an unexpected charge for an unarranged overdraft?
Do you know how much your overdraft fees are?
No, I have no idea what the cost would be (45%, 2,553 Votes)
Yes, I do know how much I'd be charged (36%, 2,048 Votes)
I'm not sure (20%, 1,131 Votes)
Total Voters: 5,732