Banks versus payday loans – who charges 3,650% APR?28 Jul
Following revelations on BBC’s Panorama television programme last week* that some banks are charging customers eye watering interest rates of up to 3,650% if they go overdrawn**, these banks may need to get their own house in order first before scoffing at perceived high APR payday loans.
So says industry expert Gary Miller-Cheevers (and CEO of payday loan company speed-e-loans.com), citing the television programme’s example of how if a Halifax customer went into an authorised overdraft with the bank by just £10 for 365 days, they’d be charged 3,650% APR**.
The shocking report also highlighted how banks make £2.6bn in penalty charges each year. It showed that though headline overdraft rates may be around 19% APR, once charges and other fees have been added in, a bank customer will pay an average of 32% APR for an authorised overdraft up to £500. For an unauthorised overdraft for the same amount, it could go as high as 165% APR.
Commenting on this Mr. Miller-Cheevers said: “It’s time for the banks to do what is morally right and be more transparent with their fees and charges, so that their customers can see exactly what they are paying for.
“The taxpayer spent nearly a trillion pounds bailing out the banks*, yet this is how they reward us – by charging outrageous fees and creaming off big profits for themselves.
“With our payday loan service, people can see exactly what they will be charged right from the outset, meaning they can make an educated decision as to whether a payday loan could be right for them.
“Certainly, a 2,334% APR may look high – though when compared to what some of the banks are charging, it is positively measly – but as the loans are usually for no more than a few weeks at a time, they can often work out very cost-effective.
“With an online small loan service like speed-e-loans, customers can set how much they want to borrow, can clearly see what the cost is, and time the repayment to coincide with their pay day. They can use us once and then use a competitor the next time. They are free to come and go. On the other hand, the banks thrive on putting fear into their customers that if they ‘mess up’, no other bank will take them, and then charge them outrageous and unclear fees for very minor overdrafts. The more people work out what’s going on, the better it will be for the consumer.”
* Panorama 19.07.10
**Halifax charges £1 a day for authorised overdrafts up to £2,500 and £5 a day for unauthorised overdrafts.
