Overdraft charges by banks higher than those from payday lenders: report

Bank customers who go into unauthorised overdrafts could face charges seven times higher than the cost of borrowing from a payday lender, research from consumer group Which? has found.

A customer dipping into the red for 30 days by just £100 might face up to £180 in fees compared to a maximum £24 charge that controversial payday firms would be allowed to levy, it said.

Which? called on the Financial Conduct Authority to crack down on "punitive" unarranged overdraft charges.

It pointed to figures showing that 51% of overdraft users went into an unarranged overdraft at some point.

The bank charges apply over each monthly billing period when a customer is overdrawn, not the number of days over which the money is borrowed.

That means customers could face paying two charges if the 30 days of being overdrawn stretches across two separate months.

Which? said NatWest - owned by majority state-owned Royal Bank of Scotland (LSE: RBS.L - news) - could charge £180 in this case for a £100 unauthorised overdraft.

Lloyds or Santander customers could be charged £160, it found.

Vickie Sheriff, Which? director of campaigns and communications, said: "It's not right that people with a financial shortfall can be charged so much more by the big high street banks than they would by a payday loan company, especially if the money is borrowed over two monthly charging periods.

"If banks can continue to set their own charges, then consumers will continue to be hit by exorbitant fees.

NatWest said in a statement: "We encourage all of our customers to contact us if they are going to enter unarranged overdraft, regardless of the amount or the length of time.

"We offer a number of alternative solutions, such as putting an arranged overdraft in place, where the costs are considerably less."

Lloyds and Santander said they have a range of tools in place to help customers manage their money.

Payday loan charges were capped in 2015, as part of moves to prevent people getting trapped in a debt spiral.

The Financial Conduct Authority (FCA) recently announced plans to put the high-cost credit sector under the spotlight, including overdrafts as well as payday lenders, pawnbrokers and firms offering rent-to-own credit on household goods.

The Competition and Markets Authority (CMA) previously found poor price transparency surrounding overdrafts generally, particularly when a customer slips into an unarranged overdraft.

Which?'s findings on the costs for borrowers come a day after elsewhere there was a blow to savers - as Government-backed National Savings and Investments cut rates by up to 0.25 percentage points.

The move affecting more than 21 million customers applies to products including NS&I's premium bonds and direct ISA.