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Exclusive: banks’ rip-off overdraft fees still worse than a payday loan

Borrowing from your bank can cost seven times more than from a short-term lender

Exclusive: banks’ rip-off overdraft fees still worse than a payday loan

New Which? research has revealed that the most expensive overdraft fees cost an incredible seven times as much as a payday loan.

We first raised the alarm over these fees in 2016, and we are concerned that, despite scrutiny from the regulator, not enough has been done to protect consumers from these sky-high fees.

And now, along with 84 MPs from all the main parties, Which? is demanding that the financial regulator, the Financial Conduct Authority (FCA), takes urgent action to end this unfair practice by restricting unarranged overdraft charges to the same level as arranged overdrafts.

The cost of unarranged overdrafts

Our research compared the cost of borrowing £100 for 30 days in an unarranged overdraft (beyond your overdraft limit) across 16 high street banks, with borrowing the same amount for the same length of time through a payday loan.

Overall, 11 of the banks investigated charged more than a payday loan company, and considerably more so in several cases. In 2014, the FCA capped payday loan charges, meaning that the cost of a loan in our scenario would be £24.

Our research found that:

  • Santander’s fees were almost 7.5 times higher and £155 more expensive – its customers were charged £179 over 30 days.
  • TSB is more than 6.5 times more costly, charging £160.
  • This is followed by HSBC and First Direct – more than six times higher, at £150.
  • RBS and NatWest are six times higher at £144.
  • Yorkshire Bank and Clydesdale Bank are all five times more expensive, charging £120.

The fees are particularly high because bank charges apply to their monthly billing period, not the number of days the money is borrowed for, meaning customers can effectively be charged more for going across two charging periods.

Which? reviewed the unplanned overdraft charges levied by the named banks in April 2018 on fee-free accounts with no minimum monthly payment.

We assumed the customer had already used up a £1,000 planned overdraft facility, and included all additional daily or monthly charges that applied as a result of the emergency borrowing.

We did not include charges for the planned overdraft, interest, or charges that relate to specific account usage, such as paid or unpaid item charges.

Correction: This story originally listed Smile and Co-operative Bank as charging more than a payday loan in our scenario. This is incorrect and the story has been updated.

FCA must tackle sky-high overdraft fees

Unarranged overdraft fees are particularly costly because bank charges apply to your monthly billing period, not the number of days the money is borrowed for. This means you can effectively be charged more for going across two charging periods.

In 2016, Competition and Markets Authority set out to tackle the issue by introducing a monthly maximum charge for unarranged overdrafts in August last year. But the measure has clearly failed to stop banks from charging sky-high rates.

Meanwhile, the FCA has previously pledged to tackle the problem, but has delayed consultations on much-needed interventions, leaving people still facing these exorbitant fees. Last year, it found that one in four people used unarranged overdrafts for more than four months in 2016, while almost one in 10 used them for 10 months or more.

And the FCA found that in one bank, less than 5% of consumers pay more than £250 per year in unarranged overdraft charges, which accounts for up to 60% of the revenue the bank generates from overdraft fees.

At another, the FCA said that 85-90% of unarranged charges are paid by 10-15% of consumers, and less than 5% of consumers account for 60% of charges.

Since Which? first called for banks to lower their unarranged overdraft fees, Lloyds Banking Group has acted to scrap unarranged overdraft fees, meaning it now has the lowest charges of all investigated banks – £19.80 cheaper than a payday loan at just £4.20.

Meanwhile, Santander has also committed to Which?’s calls and will remove fees on unarranged overdrafts for its paid current accounts from July this year – although this will not apply to other Santander accounts. Which? and parliamentarians are now calling for other banks to urgently follow suit.

Which MPs are supporting Which?’s overdraft clampdown calls?

Sir David Amess Conservative Party
Julian Knight Conservative Party
Paul Masterton Conservative Party
Luciana Berger Labour Co-op
Chris Evans Labour Co-op
Barry Sheerman Labour Co-op
Tulip Siddiq Labour Co-op
Gareth Snell Labour Co-op
Alex Sobel Labour Co-op
Gareth Thomas Labour Co-op
Debbie Abrahams Labour Party
Tonia Antoniazzi Labour Party
Ian Austin Labour Party
Hilary Benn Labour Party
Chris Bryant Labour Party
Rosie Cooper Labour Party
Alex Cunningham Labour Party
Nic Dakin Labour Party
Jack Dromey Labour Party
Frank Field Labour Party
Yvonne Fovargue Labour Party
James Frith Labour Party
Roger Godsiff Labour Party
Helen Goodman Labour Party
Kate Green Labour Party
Lilian Greenwood Labour Party
Harriet Harman Labour Party
Dan Jarvis Labour Party
Darren Jones Labour Party
Graham Jones Labour Party
Susan Jones Labour Party
Liz Kendall Labour Party
Stephen Kinnock Labour Party
Khalid Mahmood Labour Party
Siobhain McDonagh Labour Party
Conor McGinn Labour Party
Catherine McKinnell Labour Party
Madeleine Moon Labour Party
Matthew Pennycook Labour Party
Jess Phillips Labour Party
Rachel Reeves Labour Party
Chris Ruane Labour Party
Virendra Sharma Labour Party
Ruth Smeeth Labour Party
Nick Smith Labour Party
John Spellar Labour Party
Jo Stevens Labour Party
Wes Streeting Labour Party
Stephen Timms Labour Party
Liz Twist Labour Party
Matt Western Labour Party
Martin Whitfield Labour Party
Mohammad Yasin Labour Party
Sarah Chaion Labour Party
Ian Murray Labour Party
Vernon Coaker Labour Party
Gill Furniss Labour Party
Angela Eagle Labour Party
Stephen Lloyd Liberal Democrats
Mhairi Black Scottish National Party
Deirdre Brock Scottish National Party
Alan Brown Scottish National Party
Lisa Cameron Scottish National Party
Douglas Chapman Scottish National Party
Joanna Cherry Scottish National Party
Ronnie Cowan Scottish National Party
Angela Crawley Scottish National Party
Martyn Day Scottish National Party
Patricia Gibson Scottish National Party
Patrick Grady Scottish National Party
Chris Law Scottish National Party
David Linden Scottish National Party
Angus MacNeill Scottish National Party
Stewart McDonald Scottish National Party
Stuart McDonald Scottish National Party
John McNally Scottish National Party
Carol Monaghan Scottish National Party
Gavin Newlands Scottish National Party
Brendan O’Hara Scottish National Party
Tommy Sheppard Scottish National Party
Alison Thewliss Scottish National Party
Philippa Whitford Scottish National Party
Alistair Carmichael Liberal Democrat
Ben Lake Plaid Cymru


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