Connect with us

BANKING

CMA REPORT LOOKS TO INTERVENTIONS TO HELP OVERDRAFT USERS

CMA REPORT LOOKS TO INTERVENTIONS TO HELP OVERDRAFT USERS

LATEST RESEARCH SHOWS OVERDRAFT CHARGES MORE EXPENSIVE THAN PAYDAY LOANS

The wide-ranging Competition & Markets Authority (CMA) investigation into retail banking was released earlier today. One of its key areas of intervention is aimed at personal overdraft users suffering from “competition failures” in the sector.

 Commenting after the release of the CMA report, Alex Letts, CEO of the digital ‘unbank’ Ffrees, said: “In its provisional findings published in June, the CMA made the point that free-if-in-credit accounts are not in fact free.

 “I wrote to the CMA1 to explain that banning the use of the word free would be the most productive move they could make, as it grossly distorts the competition playing field and misleads consumers.  In some cases overdraft charges can hit more than £80 per month”.

 “Now we have found that overdraft charges can in fact be even MORE expensive than payday loans.

 “We know this contradicts what people expect, with one of our recent surveys2 showing the majority of Brits (40%) think an overdraft is the cheapest option for unsecured credit, followed by a credit card (33%) and finally a personal loan (24%). In fact it is quite the reverse.”

 The research has analysed the cost of borrowing with banks, in both authorised and unauthorised scenarios, and compared this to the cost of borrowing the same amount with payday loan providers.

 Comparisons show that the cost of borrowing £100 for a month can cost up to £80.80 more per month if people choose to use an overdraft, rather than a payday loan.

 Borrowing £100 for a month using the Halifax Reward Current Account unauthorised overdraft costs £100. A payday loan from The Money Shop costs £19.20; a difference of a staggering £80.80.

 The findings even reveal that those using an authorised overdraft pay a higher price than those who choose to take out a payday loan. At present, 22% of current account holders use an unauthorised overdraft, and 55% have an arranged overdraft3.

 Halifax and Santander, the two most switched-to current accounts3, have higher costs and interest rates on authorised overdrafts than payday loan providers. Both banks charge £30 if account holders borrow £100 a month, compared to £24 if you take out a payday loan with Wonga.com.

 See table below for full details and comparisons:

AUTHORISED OVERDRAFTS  The cost of borrowing £100 for a month  The % cost of borrowing £100 for a month  Cost of borrowing P.A. (per Annum)
Halifax Reward Current Account  £             30.00 30% 365.00%
Santander 123 Account  £             30.00 30% 365.00%
UNAUTHORISED OVERDRAFTS  The cost of borrowing £100 for a month  The % cost of borrowing £100 for a month  Per annum fixed rate
Halifax Reward Current Account  £           100.00 100% 1200.00%
Santander 123 Account  £             95.00 95% 1140.00%
Nationwide FlexDirect  £             60.00 60% 720.00%
NatWest Select Account  £             96.00 96% 1152.00%
Lloyds Classic Account  £             86.00 86% 1032.00%
TSB Classic Plus Account  £             87.53 87.53% 1050.36%
PAYDAY LOANS  The cost of borrowing £100 for a month  The % cost of borrowing £100 for a month  Per annum fixed rate
Wonga.com  £             24.00 24% 292.00%
The Money Shop  £             19.20 19.2% 233.60%
Payday UK  £             24.00 24% 292.00%
Quickquid  £             24.00 24% 292.00%
Cash Lady  £             24.00 24% 292.00%
Continue Reading
Editorial & Advertiser disclosureOur website provides you with information, news, press releases, Opinion and advertorials on various financial products and services. This is not to be considered as financial advice and should be considered only for information purposes. We cannot guarantee the accuracy or applicability of any information provided with respect to your individual or personal circumstances. Please seek Professional advice from a qualified professional before making any financial decisions. We link to various third party websites, affiliate sales networks, and may link to our advertising partners websites. Though we are tied up with various advertising and affiliate networks, this does not affect our analysis or opinion. When you view or click on certain links available on our articles, our partners may compensate us for displaying the content to you, or make a purchase or fill a form. This will not incur any additional charges to you. To make things simpler for you to identity or distinguish sponsored articles or links, you may consider all articles or links hosted on our site as a partner endorsed link.

Recent Posts