Bank Fees As Expensive as Payday Loans

If you think the payday lending industry charges its customers high interest rates and exorbitant fees then consider overdrafts from financial institutions. Over in Great Britain, using a bank overdraft can be just as expensive as borrowing a payday loan, according to a new report from consumer group?

The consumer organization provided an example from its analysis: borrowing $100 from an overdraft on your checking account for 31 days will cost between $20 and $30, while taking out payday loans online for the same length of time will come with an average price-tag of $20 to $37. For unauthorized overdrafts it could cost $100 to borrow the same amount of money.

With this kind of information, the group is now urging the Financial Conduct Authority (FCA) to prohibit excessive charges in the consumer credit industry as well as a cap on default charges, reports the London Telegraph.

“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 bad credit personal loans,” said Richard Lloyd, executive director of Which?

“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.”

The finance industry has shot back. Anthony Browne of the British Bankers Association argues that overdraft charges have been significantly reduced in recent years and clients have actually saved about £1 billion in fees.

Instead, Browne says, consumers should take advantage of new regulatory rules that allow individuals to better select an account that suits their needs rather than choosing one that has features they won’t even use.

“The higher figures quoted by Which? are based on extreme examples of unauthorized overdrafts. This is not a form of borrowing that we would ever recommend,” Browne explained to Yahoo! Finance UK.

“We always encourage customers to shop around to get the best deals and the recently launched switching service makes it easier than ever before. Banks compete vigorously for business and customers should take full advantage of this competition to get the bank account that’s best for them.”
  
In order to better protect consumers in the credit industry, the FCA has introduced a series of measures, including limiting the number of times a payday lender rolls over a loan and applying “risk warnings” on customer applications.

The Competition Commission is currently investigating the payday loan industry. The sector is currently valued at £2 billion ($3.3 billion).

6 Comments

  • John
    Posted March 26, 2015 at 7:15 pm | Permalink

    I bought a small dollar loan from a nonprofit bank and I strongly feel that it is the right answer to the problem of overcharged loan fees from some renowned banks across U.S. for my friends who are seeking small loans, I will suggest seeking financial help through these banks.

  • Jenny
    Posted March 26, 2015 at 7:16 pm | Permalink

    The banks are ironically charging such huge amount for loans, these are even leaving payday lenders behind in squeezing customers for every penny. If one has to seek financial help, borrowing a loan from banks or even payday lenders must be the last option on their list.

  • Melissa
    Posted March 27, 2015 at 7:36 am | Permalink

    If I have had to choose between a bank and a payday lender for financial assistance, I would definitely go with the bank. In that way, I could promise myself peace of mind while the loan amount in being repaid.

  • Anaida
    Posted March 27, 2015 at 7:39 am | Permalink

    Both payday lenders and banks are making borrowers a fool by promising easy loans. In case of payday lenders, the loans are easy to get but come with a higher interest rate while with banks the rate of interest is reasonable but the additional processing fee makes the scenario costly for a borrower.

  • Tom
    Posted March 27, 2015 at 7:41 am | Permalink

    I bought a loan from the federal bank few days ago. Apart from the principal, I was destined to give additional bank processing fee for the loan application and an interest also came to make the scenario even worse. Now, I am planning to pay off my loan ASAP, so that I would never ever get trapped in the debt trap.

  • Henry
    Posted March 27, 2015 at 7:42 am | Permalink

    The banks are ironically charging such huge amount for loans, these are even leaving payday lenders behind in squeezing customers for every penny. If one has to seek financial help, borrowing a loan from banks or even payday lenders must be the last option on their list.

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