UK banks charging as much as 800,000% on overdrafts

cashpoint machine Some people are finding themselves paying extremely high rates to borrow from their overdraft

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Some High Street banks are charging "eye-watering" rates of interest when their customers go over their overdraft limit, research by Radio 4's Money Box programme has revealed.

A customer borrowing £100 for 28 days without the consent of Santander would repay £200, for example.

That is the equivalent annualised percentage rate, or APR, of 819,100%.

Eric Leenders, from the British Banking Association, said that the industry was willing to look at concerns.

But he said that using APRs to calculate the cost of unauthorised borrowing was a "mathematical manipulation" because the fees are representative of borrowing on an overdraft facility, not for borrowing the specific amount of money.

Mike Dailly, from the Govan Law Centre, said the government must review unauthorised overdraft charges.

"What we've got here is banks with equivalent APRs of nearly one million percent. It really is eye-watering."

High cost

Comparisons between banks and so-called payday lenders showed that the annualised percentage rate charged for borrowing £100 over 28 days varied from 969% to 819,100%.

Start Quote

I cannot see how you can have a meaningful review of credit and debt without including overdraft charges”

End Quote Mike Dailly Govan Law Centre

No payday loan lender charged an APR of more than 5,000% but two banks - Santander and Lloyds TSB - charged an equivalent APR of more than 300,000%.

Santander told the BBC: "It's is confusing to compare payday loans with overdrafts on current accounts because an unauthorised overdraft charge is for unauthorised use of a current account while a payday loan is an agreed loan facility."

Barclays would charge a customer using a personal reserve - a pre-agreed emergency borrowing facility - £22 for every five consecutive working days they were in it. This means customers would pay £88 on top of the £100 capital after 28 days - an equivalent APR of 366,000%.

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Money Box is broadcast on Saturdays at 12:00 GMT on BBC Radio 4 and repeated on Sundays at 21:00 GMT

Mr Dailly said the situation is worrying for consumers.

"The Romans 2,500 years ago managed to cap lending charges at 8%," he said.

"States in America have outlawed payday loans and effectively capped the cost of lending. These companies have come over to our country and they've said they want to operate in our deprived communities because that's where their business is."

Money Box has received a steady stream of emails from bank customers this year complaining about the level of charges.

One of them, Marc Daffern, from Stamford, was told he had accrued £775 in charges for an unpaid direct debit of £6.99 from his bank, NatWest.

He said: "I was offered to be allowed to pay it off at the lower amount of around £400 but I wasn't willing to do so because as far as I'm concerned I shouldn't owe them any of this money in the first place."

NatWest said that it is investigating Mr Daffern's complaint.

Payday lender growth

The payday loan market has expanded rapidly in the last decade.

Lenders typically lend amounts up to £1,000 for up to a month. Applications are processed quickly and the borrower can typically receive the money the same day. But the quick availability of credit comes at a cost, typically an APR of around 2,000%.

The Citizens Advice Bureau has said it is too easy to obtain such credit and has called for tighter regulation. But Consumer Minister Ed Davey believes that tougher measures could push people into the hands of illegal loan sharks.

Last month, the Department for Business, Innovation and Skills (BIS) published a report on consumer credit.

In the report, the BIS said that commitments made by High Street banks will "deliver a fairer, more competitive market and mark a real improvement for consumers".

The BIS said that it is aware of an upsurge of concern regarding the rapid increase in the use of payday and other instant lending, and dialogue has already started with the industry on introducing enhanced consumer protection in their codes of practice.

The Office of Fair Trading said the payday loan industry was worth about £115m in 2004. According to a report by consumers' association Which? that figure was £1.9bn in 2010.

Bank charges

The maximum charged for borrowing £100 for 28 days from a payday loan company is £42.

That is compared to unauthorised borrowing charges of £100 with Santander, £88 with Barclays and £86 with Lloyds TSB for the same sum of money over the same period.

Mr Leenders, from the BBA, told Money Box: "There are better ways of covering short-term credit for small amounts. It may be more cost effective to arrange an overdraft or put the purchase on a credit card."

In 2009, UK banks won a Supreme Court case that had been brought to challenge the legality of large overdraft charges.

In explaining his ruling, the Supreme Court's president, Lord Phillips, said that bank customers agreed to pay overdraft charges as part of the price of having a current account, so they fell outside the scope of the 1999 consumer contract regulations.

But in the aftermath of the ruling, most banks did agree to reduce the level of their charges.

However, although the charges have been reduced in some cases the number of times a customer can be charged in one month has gone up.

The OFT said that under the Consumer Credit Regulations Act of 2010, businesses do not need to state an APR for "any charges payable due to non-compliance with commitments contained in the consumer credit agreement".

Money Box is broadcast on Saturdays at 12:00 GMT on BBC Radio 4 and repeated on Sundays at 21:00 GMT. You can listen again via the BBC iPlayer or by downloading Money Box podcast.

Have you been charged overdraft rates you believe were excessive ? Let us know your views

I had an overdraft of £200 run by RBS. One card transaction went over the limit, and it created a snowball of charges. I was being charged £6 a day! I went into a few branches and they said there's nothing they can do, and just kept pointing me towards "collections". Eventually I was forced to default at circa £800!

Ben, London

I had opened an account with Lloyds which I then used to pay a direct debit to Fitness First. In dispute with the latter I accrued a £6.99 unauthorised overdraft. This led to a £250 debt some few months later.

Nicholas, London

These high rates are for "unauthorised" overdrawing, meaning taking money without permission. It is no different than taking £10 from a wallet found on a table. This means that the high charges are meant as a deterrent and should not be seen as interest on a loan.

R, Peterborough

I have a LloydsTSB classic account with an agreed overdraft limit, but if I use just ten pounds of my authorised overdraft I get charged a £5 usage fee!

Chris, Wirral

I'm getting charged £140 a month overdraft charges with Halifax. It costs £5 day. As I had a student account so my overdraft is £1500. Currently I'm on Jobseekers Allowance which is not much money to live on anyway without having to pay roughly 70% of it on charges!! It's insane.

Richard, Manchester

I had a balance of £2,400 and six outgoing payments in one day, one for £2,350 and five small ones totalling £350. They could have paid the five smaller ones and just the big one would have pushed me over the limit and they could have charged me the £30 penalty, but no, the banksters first paid the bigger amount and then charged me £30 a time on the five small ones. On complaining, I got nowhere.

John, Brighton

I went into my overdraft with Lloyds by £3.00, 8 months down the line they are chasing me for £268.00. I didn't realise I was in my overdraft as I moved house!!

Ash, Stoke

I wouldn't even try to work out the percentage involved but my wife has just been charged £30 for being overdrawn accidentally by £5.20 for one day.

Rodney, St Ives

Last month, my current account with Loyds was overdrawn by £250 from the 28th to the 29th of October. More than half of this was due to a double charge by the bank for insurance. This has since been refunded. Admittedly, the rest was an oversight on my part. I have an agreed overdraft facility on this account. The interest was a reasonable 13p, but there was an 'overdraft usage charge' of £5. Thus I was effectively charged £5.13 on £100 for 1 day!

John, Knutsford

I've had my fair share of charges for DD payments. Now the problem as I see it is this 1) If you attempt to draw £10 from a cash point, and you only have £9 in, the cash point refuses you, but does not charge you. But if a DD comes in for £10 and you only have £9, banks slap a levy of £30, don't pay the DD, and so the spiral starts, especially if you are on low incomes, so not only do you have the £10 to pay the company, you also have £30 to pay the bank. Personally I don't see why the banks cannot automate the system, if there isn't money in, the computer could send a NO to the payer, and refuse money transfer, and NOT charge the customer.

Marc, Lancs

I have an interest free overdraft facility of £250 from my bank, Lloyds TSB. They now charge a £5 fee for straying over this interest-free limit. I have strayed over this limit twice in the last year or so. The first time, I went £52 over for about 24 hours. The second time is even better...I went over by £27 for a twelve-hour period. This means that I have been charged £5 for borrowing £52 for 24 hours and another £5 for borrowing £27 for 12 hours. Considering that I also pay a £17 monthly fee for the account, I would be very interested to know what that works out as an APR.

Peter, Aldershot

I think it should be based on a percentage of how much you're into an unarranged overdraft. I'm tired of Halifax charging me £5 a day for being just 80p in unarranged overdraft, yet the same amount if I'm £100 in the red. It makes no sense.

Jon, Newcastle

I was charged almost £200 for being a few pounds overdrawn. The account went overdrawn after charges were added to an overseas withdrawal a number of days after the withdrawal took place. I was not informed of being overdrawn until almost a month later which meant that Natwest had charged me £6 per day without my knowledge. In disgust, I had to take a day off work to sort this out. I can't remember the exact figures, but I was informed I had to pay £130 in fines. I deposited this money and a bit more into my account and was under the impression that the account was in credit. However, as this was the second time this year I have had a complaint with Natwest, I decided to close my account. Only then did they tell me that further charges were required because the amount I had been told was only for an earlier period. Thus, had I not closed my account, a month later I would have been hit by another bill for a few hundred pounds. I have complained to Natwest and they have a few more weeks to reply otherwise I am referring this to the financial ombudsman.

Giles, Newcastle

I have been a customer at Halifax bank for a number of years and would like to raise the subject of their "charging system" £1 a day for every day you are in an agreed overdraft and £5 for every day in an unagreed overdraft, which over 28 days would work out as £140! Near double the other charges. Not forgetting the fact that the Bank of Scotland was bailed out by the tax payers and we are now getting hammered for every penny left in our pockets.

Matty, Northern Ireland

I am appalled at obscene amounts that banks can charge for what is essentially a short term loan. They attempt to get around this by claiming it is an "unauthorised" transaction but surely in order to access the funds it must be authorised somewhere in the system. Logic suggests that when there is no money left in your account, and you don't have an overdraft, you shouldn't be able to withdraw any money and your card should be rejected? Apparently not.

Ben, Lancaster

The opportunity to stop this scandalous overcharging was lost a couple of years ago when a tiny number of people (maybe even one, I'm not sure) decided in the Courts that the punitive level of bank charges was a jolly fine thing. The public has no power. Where is the democracy in that?

Peter, Shetland

I recently received a statement from my bank charging me £45 for one day of going over my over draft by £2. I rang them up and told them that I couldn't afford to pay it they were reasonable and cleared it for me but its way too much.

Orlaigh, Newry

This article is biased and unfair. Comparing a charge for authorised borrowing and a fine for unauthorised lending is playing with facts to prove your point! Remember - unauthorised lending is spending money you do not have and are not entitled to. It is using the banks money without their permission which is a form of "theft". Putting all personal feelings aside - you have to agree with the bank - a £88 fine for £100 of unauthorised borrowing is fair.

Qasim, London

That's nothing, if you go £1 overdrawn with Halifax they charge £5 per day !! Don't know what % interest that would add up to but it's a lot.

Chris, Bolton

I ended up in over £500 of debt for a total unauthorised overdraft of £4.66 with Halifax

Toby, Brighton

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