Some banks charging more to borrow than payday lenders

The consumer group probed the fees high street lenders charge when people slip into an unarranged overdraft - which could happen when someone breaches their planned overdraft limit or when they do not have an pre-arranged overdraft, but spend more money than they have in their account.

Looking at unarranged overdraft charges, the consumer group’s research found that consumers needing as little as £100 could be charged over 12 times more by major high street banks than the amount the Financial Conduct Authority (FCA) allows payday lenders to charge, when borrowing over the same period.

Which? compared the cost of borrowing £100 for 28 days and found that charges at some high street banks were as much as £90 - up to four times the maximum charge of £22.40 on a payday loan.

It found that some RBS customers could face costs of £90, while customers at Lloyds, HSBC and TSB could face £80 in costs.

The consumer group said unarranged overdraft borrowing charges from some high street banks are 12 and-a-half times higher than the FCA cap if consumers borrow £100 for one day. The FCA cap for one day is 80p, compared with £10 for the Lloyds Classic Account or TSB Classic Account, Which? said.

Unarranged overdrafts have already come under the spotlight recently as the Competition and Markets Authority (CMA) has proposed that banks should set their own monthly unauthorised overdraft charge cap, which they would have to show clearly.

It is hoped that this would encourage banks to compete to drive down the costs, rather than having a single charge cap.