According to consumer group Which?, the high cost of some overdraft charges mean that “borrowing” £100 from some high street banks can cost four times as much as borrowing the same amount from a payday loan company.

Which? investigated the fees charged by high street banks when customers slip into an unauthorised overdraft and discovered that those requiring as little as £100 are being charged up to 12 times more by major high street lenders than the amount the Financial Conduct Authority (FCA) allows payday lenders to charge for the same period.

The Financial Conduct Authority has capped charges on payday loans at 0.8% per day of the amount borrowed since 2015.

The regulator said that some campaign groups want charges for unarranged overdrafts to be set at the same level as arranged overdrafts.

According to Which?, the cost of borrowing £100 using an unauthorised overdraft facility for 28 days from some high street banks is as high as £90. This is up to four times more than the maximum allowed charges of £22.40 permitted by the FCA on payday loans.

Why Does This Happen?

Part of the problem arises because the bank charges apply over each monthly billing period that a customer is overdrawn, not the number of days for which the money is borrowed.

That means that customers could face paying two separate charges if the 30 days of being in an unauthorised overdraft stretches across two months.

Which? said that NatWest could charge £180 in this case for a £100 unauthorised overdraft.


Lloyds customers could be charged slightly less at £160. A spokesperson for Lloyds said: “The vast majority of our customers who use their overdraft remain within their planned limit in an average month, and the process to agree a new or revised limit is quick and simple.”

Vickie Sheriff, director of campaigns and communications at Which?, 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.”

The magazine says that the banks make £1.2billion per year from unarranged overdraft fees.

Consumer competition watchdogs recently proposed that banks should set a cap on unauthorised overdraft charges to prevent customers from paying excessive fees.

What the authorities say

Alex Neill, director of policy and campaigns at Which?, said: “People with a shortfall in their finances can face much higher charges from some of the big high street banks than they would from payday loan companies. [The regulator] must now tackle punitive unarranged overdraft charges that cause significant harm to some of the most vulnerable customers.”

Gillian Guy, chief executive of Citizens Advice, said: “An unplanned expense that pushes someone into their overdraft by just a few pounds can lead to them being trapped in a cycle of daily charges.”

RBS customers face costs of £90, while customers at Lloyds, HSBC and TSB face paying £80 for the same service. A spokesperson for RBS had this to say: “We encourage all of our customers to contact us if they are going to enter an unarranged overdraft regardless of the amount or the length of time.”

HSBC said: “We would always encourage customers to contact us if they need to arrange a formal overdraft or an extension to their existing formal limit.”