Unauthorised overdraft ‘cheaper at payday rate’

Feb 13 2010 by Iain Laing, The Journal

TAKING out an unauthorised overdraft with one of the UK’s part-nationalised banks can be more expensive than going to a payday loan company.

Payday loan firms, which lend small amounts for short periods to people who would struggle to get credit elsewhere, have come in for heavy criticism for charging interest and fees equivalent to more than 3,000% a year.

But someone who wanted to borrow £150 for 10 days would be better off going to one of these lenders than taking out an unauthorised overdraft with Lloyds TSB.

Lloyds TSB, which has received significant Government support, would charge a current account customer £216.32 in interest and charges if they were overdrawn by £150 for 10 days.

Halifax, which is also part of the Lloyds Banking Group, is only slightly better, levying a £50 fee under the same scenario.

But payday loans firm speed-e-loans. com would charge less than half this amount at £20.45, although this is still equivalent to an annual interest rate of 3,142%.

Other banks also charge more than speed-e-loans to borrow the same amount through an unauthorised overdraft, with Alliance & Leicester charging £50, while Barclays would charge £44.

But Royal Bank of Scotland, which has also received Government backing, and Nationwide have more reasonable charges at £20.73 and £20.78 respectively, although in the case of RBS charges could be higher if the account holder bounced a cheque.

HSBC would charge just 75p under the scenario if it was the first time the customer had gone overdrawn during a six-month period.

Lloyds Banking Group defended its unauthorised overdraft charges, saying it had clear tariffs and it made every effort to ensure that customers were aware of them.

It added that allowing customers to go into unauthorised overdraft also meant that payments could continue to be made from their account.

A Lloyds Banking Group spokesman said: “A comparison with other credit products, such as a payday loan, is inaccurate.

“A payday loan is a fixed-term loan for a short period of time – an unarranged overdraft is a variable term loan from the bank that allows customers to make payments immediately, directly from their account using a debit card, direct debit or standing order, without having to enter into a separate new lending arrangement with another third party.”

He added that the majority of people only used unauthorised overdrafts for very short periods, often for just a few days before they were paid.

A comparison with other credit products, such as a payday loan, is inaccurate