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Which? demands action over unauthorised overdraft charges

Consumer group calls on financial regulator to rein in the banks over ‘complicated and exorbitant’ borrowing structures

Bank charges on unauthorised overdrafts are “too high, too complex and impossible to compare”, according to a report from consumer organisation Which?. It is calling on the financial regulator to put a stop to these “complicated and exorbitant” charges.

Which? asked a group of consumers to work out the cost of an unauthorised overdraft at four different banks by giving them a mock bank statement. Not one got all the calculations right, with the volunteers only managing to get seven out of 48 correct between them. One volunteer, despite currently studying for a PhD in maths, only got two out of the four calculations right.

Which? says charges made by banks when a current account holder spends beyond their authorised overdraft limit, or goes into the red without having an arranged overdraft in place, are extremely hard to calculate and virtually impossible for consumers to compare, as the fee structures are so complicated and vary from bank to bank.

“While overdraft charges may appear easy to compare, as banks charge either ‘simple’ daily fees or interest on their main current accounts, [our] researchers found each had a myriad of complex rules and additional fees,” it said. “Lloyds TSB‘s fees were particularly confusing, with three different types of fees in addition to charging interest on the unplanned overdraft.”

The research also found that people could be paying more than twice as much a month for an unauthorised overdraft with one bank compared with another. Which? said Nationwide – which for unauthorised overdrafts on its FlexAccount charges 18.9% interest and £15 for unpaid or paid item fees plus a £20 monthly usage fee, with all charges capped at £95 a statement – would charge £50 in fees in the case of a customer making one payment from their account while being overdrawn for two days in a row in a month. In the same scenario, Halifax‘s Reward Account would charge £10.

For customers overdrawn for many consecutive days and making lots of payments, First Direct and HSBC charged the highest unauthorised overdraft fees at £150 a month compared with £66 charged by Barclays for the same overdraft.

The research also revealed the daily fees charged by many banks. Royal Bank of Scotland/NatWest, for example, charged £6 a day, equivalent to an interest rate of 2,190% APR on a £100 unauthorised overdraft.

Which? is using the topic of tackling inflated and complex bank charges to highlight the tough action it wants to see taken by the new financial regulator, the Financial Conduct Authority (FCA), when it takes over responsibility for protecting consumers from the current Financial Services Authority (FSA) by the end of this year. © 2012 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds