Overdrafts look more like payday loans as banks hikes interest rates

Some of the most established banking institutions in the UK have shocked the nation by introducing new interest rates and charges. It seems that overdrafts look more like payday loans as we start to examine the new systems. The banks in question have hiked their fees and rates so much so that customers will be paying up to 15 times more as they were. The FCA (Financial Conduct Authority) has taken over policing banking institutions. The regulator is always there to help the consumer and in this case is concerned that the customers will not understand the new systems that the banks are putting into place.

How does a bank manage to make overdrafts look more like payday loans?

It’s simple. This bank created a new system whereby the original 19.3% charged across the board on any overdraft no matter how large or small is changed to a series of different rates and charges according to the size of the loan. In an example of one such bank, five million customers were cordially informed of the following.

  • If you run an overdraft of 300 pounds for 3 days a month for a whole year, you will be paying 5.71 pounds a year. This will increase to 27 pounds.
  • If you are overdrawn by 1200 pounds for 10 days out of a month for a year, the price tag rises from 76.14 pounds to 160 pounds a year.
  • Instead of an interest rate for overdrafts, the bank will introduce a flat rate daily fee
  • 75 pence a day for any amount borrowed under 1000 pounds
  • 50 pounds for any amount between 1000 – 2000 pounds
  • 3 pounds for amounts exceeding 2000 pounds.
  • However, if you are overdrawn for more than a month, a 90 pound fee is all yours.

Facebook exploded with angry customers. Many people threatening to leave the bank in protest. One woman wrote,

“While I pay about 1.50 pounds in interest a month on my overdraft at the moment, it is now going to cost me 15 pounds. Goodbye bank.”

If overdrafts look more like payday loans, why are we not getting all upset?

Well we are. MoneyComms has done extensive research and the results are surprising. Banks across Britain, Scotland, and North Ireland are changing their tune, but there are huge differences between the different institutions. Richard Lloyd, executive director of consumer group Which?, said,

‘We have long called for the regulators to clamp down on excessive bank charges that hit hardest at people struggling with their finances. And with some unauthorized overdrafts as costly as payday loans, we want to see charges made clearer so that people can compare different borrowing options easily.”

The retort from the spokesman at one of the banks was that,

“Customers have told us daily fees are less confusing than APRs (annual percentage rates).