West Lancashire MP Rosie Cooper has today joined forces with consumer champion, Which?, and over 80 fellow parliamentarians in signing a letter asking for the Financial Conduct Authority (FCA) to bring an end to rip-off overdraft fees.

MP Rosie is concerned that residents in West Lancashire might still be paying excessive fees on unarranged overdrafts, some of which may still cost over seven times more than a payday loan according to new research from Which?

Despite scrutiny from the regulator, she feels not enough has been done to protect consumers from these sky-high fees. 

West Lancashire MP Rosie Cooper said:
“We often hear of strict regulation for payday lenders and cracking down on loansharks when the reality is, as this research indicates, much debt and stress can be caused by our high street banks.

“Overdraft fees can be the first step in spiralling into a vicious debt circle which can lead people to resort to credit cards, payday lenders and worse. We need our banks to be responsible and support customers to climb out of debt not increase it.

“That is why I was happy to put my name behind the calls for the Financial Conduct Authority to take action and bring an end to rip-off overdraft fees.”

Which? first raised the alarm over these fees in 2016, but new research shows the issue still exists.

The consumer champion compared the cost of borrowing £100 for 30 days in an unarranged overdraft across 16 high-street banks with borrowing the same amount for the same length of time through a payday loan. Overall, 13 of the banks investigated charged more than a payday loan company, and considerably more so in several cases.  

The FCA previously capped payday loan charges, meaning that the cost of a loan in our scenario would be £24. Which? found:

  • Santander is almost 7.5 times* higher and £155 more expensive, charging its customers a massive £179 over 30 days.
  • TSB is over 6.5 times more costly, charging £160.00.
  • This is followed by HSBC and First Direct -; over 6 times higher, at £150.
  • RBS and Natwest are £144 and 6 times higher.

Now, Which? has written a letter to the FCA along with 84 MPs from all the main parties, demanding the Financial Conduct Authority takes urgent action to end this unfair  practice by restricting unarranged overdraft charges to the same level as arranged overdrafts.

Gareth Shaw, Which? Money Expert, said:
“It’s alarming that the majority of banks are still allowed to charge more than payday loan firms through these rip-off overdraft fees. These extortionate fees can cost thousands of pounds a year, hitting those who can afford it the least.

“The regulator cannot drag its heels any longer. We must see urgent action to restrict these charges, bringing them into line with arranged overdraft fees to finally end this unfair practice.”

These fees are particularly costly 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. The 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 consulting on much-needed interventions, leaving people still facing these exorbitant fees.

Since Which? first called for banks to lower their unarranged overdraft fees, the Lloyds Banking Group has acted on its calls and scrapped unarranged overdraft fees, meaning it now has the lowest charges of 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 Research

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.

* Exact comparisons for the banks are as follows: Santander is 7.45 times more expensive, TSB is over 6.7 times more costly. HSBC and First Direct are 6.25 times higher. RBS and Natwest are 6 times higher.

* Santander charges will no longer apply to its paid current accounts from 10th July 2018, although this will not apply to other Santander accounts.

* Overall, Which?  looked at the following bank accounts: Bank of Scotland (Classic), Lloyds Bank (Classic), Lloyds Bank (Club Lloyds), Halifax (Reward), Danske Bank (Choice), Barclays (Bank Account), Nationwide BS (FlexDirect), Clydesdale Bank (Current Account Plus), Clydesdale Bank (B Current), Yorkshire Bank (B Current), Yorkshire Bank (Current Account Plus) Co-Operative Bank (Current Account Plus), Co-Operative Bank (Standard), Smile (Current Account), First Direct (1st Account), HSBC (Bank Account), TSB (Classic Plus), Natwest (Select), Royal Bank of Scotland (Select), Santander (123 Account). 

May 2016: The CMA proposes requiring banks to set a monthly maximum charge for unarranged overdrafts on personal current accounts. Customers may not even be aware of when they go into unarranged overdraft or realise the costs they are incurring, so the CMA also wants banks to alert people when they are going into unarranged overdraft, and give them time to avoid the charges. https://www.gov.uk/government/news/cma-wants-banks-to-work-harder-for-their-customers

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