BBC reveals 800,000 per cent overdraft charge
BBC Radio 4′s Money Box reported on its Saturday programme that banks are charging excessively high rates for overdrafts.
The programme, which offers advice on how to make the most of your money, suggested that UK banks are charging the equivalent of thousands of per cent APR for going overdrawn by small amounts.
Santander’s customers, for example, could incur a £200 charge for an unauthorised overdraft of £100 for four weeks, representing an APR of 819,100 per cent.
In comparison, even so-called payday loan companies, notorious for high APR rates which push people further into debt, only charge up to 5,000 per cent.
Eric Leenders, the British Banking Association’s executive director for retail banking, defended overdraft rates on the programme, explaining that using APRs to calculate the cost of an unauthorised overdraft was misleading.
However, he did say that the banking industry was willing to look at concerns and he advised listeners that arranging an overdraft or putting a purchase on a credit card was more cost effective than an unauthorised overdraft.
Earlier this month UK banks entered into a voluntary agreement with the Department for Business, Innovation and Skills (BIS) and HM Treasury which should make overdraft charges more transparent.
The changes were introduced after bank customers complained that bank charges were unclear.
Under the voluntary code, customers will be alerted by text message or email when they are in danger of going into the red, giving them time to top up their account and avoid overdraft charges.
They will also receive an annual statement with a breakdown of all fees and charges applied to their current account.
Barclays, HSBC, Lloyds TSB, Royal Bank of Scotland and Santander will provide a small buffer zone, allowing customers to go overdrawn by a small amount, without incurring charges.