Who are the ‘loan sharks’ charging 800,000% interest? That’s right- the High Street Banks…

sharksFinding Christmas a stretch for your pocket? Worrying how you can afford that new computer console/ 46” 3D TV/ chunky gold ‘chain’ you absolutely can’t live without? Don’t worry, all you need to do is turn on your current (44”) TV and take the details of one of the searingly helpful short-term (payday) loan providers advertising quick and easy cash. Or, you could go down to your local dodgy Estate/Pub/Car Park and find one of those nice men accompanied by Big Strong Men who will lend you money at even more ‘reasonable’ rates.

Of course we are kidding- if you are a little over-stretched this Christmas, and let’s face it most of us are, with reports that people are either selling off last year’s pressies or turning off the heating in order to fund it, you wouldn’t dream of going to a payday loan company or loan shark would you? They charge ridiculous rates of interest and won’t listen to pleas for sanity…

However, new research from the BBC has compared the rates charged by payday lenders and some High Street banks and found that the annualised percentage rate (APR) charged for borrowing £100 over 28 days varied from 969% to 819,100%.  And the worst culprits are not the payday loan companies, but High Street banks whose customers go over their overdraft limit.

For example, a customer borrowing £100 for 28 days without the consent of Santander would repay £200, for example which gives an equivalent APR of 819,100%. No payday loan lender charged an APR of more than 5,000% but three banks – Santander, Barclays and Lloyds TSB - charged an equivalent APR of more than 300,000%. Barclays even charge a customer using a pre-agreed emergency borrowing facility - £22 for every five consecutive working days they are in it, meaning customers pay £88 on top of the £100 capital after 28 days - an equivalent APR of 366,000%.

Eric Leenders (seriously, this is his actual name and he isn’t even from Happy Families), from the British Banking Association, said that the industry was “willing to look at concerns” but complained that using APRs to calculate the cost of unauthorised borrowing was a "mathematical manipulation". Santander told the BBC: "It's is confusing to compare payday loans with overdrafts on current accounts because an unauthorised overdraft charge is for unauthorised use of a current account while a payday loan is an agreed loan facility."

Mike Dailly, from the Govan Law Centre, said the government must review unauthorised overdraft charges. "What we've got here is banks with equivalent APRs of nearly one million percent. It really is eye-watering."

The Citizens Advice Bureau thinks it is too easy to obtain ‘Payday’ credit and has called for tighter regulation. However, Consumer Minister Ed Davey believes that tougher measures could push people into the hands of illegal loan sharks. As opposed to the legal ones on the High Street.

Last month, the Department for Business, Innovation and Skills (BIS) published a report on consumer credit, expressing concern over the Payday market, which said that commitments made by High Street banks will "deliver a fairer, more competitive market and mark a real improvement for consumers". Yeah, right.

How can they be allowed to do this?

Well, in 2009, UK banks won a Supreme Court case that had been brought to challenge the legality of large overdraft charges. The case found that bank customers effectively ‘agreed’ to pay overdraft charges as part of the price of having a current account, so they fell outside the scope of the 1999 consumer contract regulations.

Nevertheless, in the aftermath of the ruling, most banks did agree to reduce the level of their charges, but although the amount of charges have been reduced in some cases, the number of times a customer can be charged in one month has gone up.

Furthermore, the OFT said that under the Consumer Credit Regulations Act of 2010, businesses do not need to state an APR for "any charges payable due to non-compliance with commitments contained in the consumer credit agreement".

As a result, the maximum charged for borrowing £100 for 28 days from a payday loan company is £42. This would generate unauthorised borrowing charges of £100 with Santander, £88 with Barclays and £86 with Lloyds TSB for the same sum of money over the same period.

Defenders of the charges claim that unauthorised overdraft borrowing is like ‘stealing’, and the charges are therefore intended as a deterrent. However, others claim banks should treat direct debits that are not covered in the same way as a request for cash from a cash point*, and refuse to pay out. Although that would prevent them levying daily charges on top of a refusal fee, so they probably won’t go for it…

* definitely not a Cashpoint as that term is trademarked by LloydsTSB Plc.


  • Rab N.
    Govan Law Centre???? *Shudder*
  • MrRobin
    Working out APR for short term 'loans' is ridiculous because of the componding nature of interest. It's the same reason that the pay-day type loan companies protest about having to put the APR on their adverts - it's dumb. Besides, the money you have to pay the bank for going over your overdraft is a penalty, not interest and shouldn't be calculated as such. I'm not defending the banks, I just think that articles quoting absurd figures like this are just doing it for the shock factor, rather than because they're trying to expose a 'scandal'.
  • JonB
    I agree with MrRobin that this is a spurious comparison. Going overdrawn used to have a big stigma attached to it. I have done so a couple of times and felt guilty about it. All the relaxing of overdraft penalties would do is allow people who live beyond their means another way of building up debt.
  • MrRobin
    Consider this similar example... different context but same rational and calculation... You go and park your car in a carpark for a whole day. The charge is £10 but you choose not to pay it or can't afford to. You return the next day and you've got a fine for £60. Noone will be printing an article in the paper saying you were charged... 10600000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000% APR On your 'loan' for your ticket, are they?!! Yes I've calculated that correctly and checked the number of zeros is correct. -- 1.06x10^286%
  • MrRobin
    Oh god damn it... it was supposed to say 10600000000000000000000000000000000000000000000000000 00000000000000000000000000000000000000000000000000000 00000000000000000000000000000000000000000000000000000 00000000000000000000000000000000000000000000000000000 00000000000000000000000000000000000000000000000000000 0000000000000000000000% APR
  • Dick
    Oh well, the BBC has to spend the TV tax somehow otherwise the government might consider reducing it, so they might as well spend it on meaningless crap.
  • BBC L.
    [...] Bitterwallet [...]
  • Who L.
    [...] Bitterwallet [...]
  • jah128
    Worst maths ever?
  • Haggis
    'Well, in 2009, UK banks won a Supreme Court case that had been brought to challenge the legality of large overdraft charges. The case found that bank customers effectively ‘agreed’ to pay overdraft charges as part of the price of having a current account, so they fell outside the scope of the 1999 consumer contract regulations.' WRONG The Supereme Court found that the OFT didn't have jurisdiction to bring the action. The supreme Court in no way ruled these charges lawful.
  • Ed
    "For example, a customer borrowing £100 for 28 days without the consent of Santander would repay £200, for example which gives an equivalent APR of 819,100%" Meanwhile "borrowing" £100 without the consent of a payday lender (for a fair comparison), will probably get you a nice stay at Her Majesty's pleasure.
  • Mark H.
    As mentioned in the article (at the bottom which most people won't read to) the way to stop this is to give the customer the option of an account that cannot go over the agreed overdraft limit. You'd then just get a phone call from the company whose Direct Debit was refused and then just sort it out with them without having to pay extortionate 'penalty' fees to your bank. Why don't the banks give that option?
  • Debit B.
    An account that cannot go over the agreed limit sounds like a good option BUT bounced payments cost money - so, a charge from the bank for bouncing the debit and from British Gas 'coz they've had to chase you for it - oh and you're now on a higher tariff. - which option will most people go for? Agree a reasonable limit (say the amount you credit each month) and stick to it. Oh, and the only unauthorised overdraft is a guaranteed cheque - the bank authorises all other payments (by choosing to pay) the term should be "breaching the agreed limit"
  • Kevin
    If you are going to go over your overdraft then tell the bank and ask for an extension! How difficult is that?
  • Neil H.
    Kevin, and what if they say "no?" Hopefully you will never experience a strain on your finances but sometimes things can get out of hand. It is amazing how quickly a balance can be eaten up when you lose track of your expenditure. A bit of extra Christmas spending and a forgotten DD pushes you over by £10 and you get charged £20 charges and £20 returned item. You promise to do better, but the next month you forget about the £40 charges which pushes you over again, costing another £20, etc. etc. APR or penalty, being charged £300 for exceeding your overdraft by less than £100 is criminal. First Direct did it to me last year and refused to even give me £20 GOGW when I took on board all their debt management advice, stopped all outgoing payments but made the mistake of forgetting about outstanding charges. There was no sympathy, no attempt to see things from my pov, just pure, plain punishment. And there are plenty of people out there who struggle to get by with poor credit ratings, low paying jobs and bills to pay. It's too easy for banks to churn out automated charges and then shrug their shoulders and say...'not our fault.' While people are continually allowed to access money they don't have, and are charged for it, I feel the comparison with loan sharks is justified.
  • Neil H.
    By the way, I agree with Mark H totally. There's nothing more sobering than your bank saying 'we won't pay' and the bill owner saying, 'where's my money?' Yes, it costs money, but less than the banks' charges, and your head is well and truly drawn out of the sand. It's called 'nipping things in the bud.'
  • Raggedy
    What bothers me is the sheer stupidity of the whole thing. You go overdrawn (which means you're short of money or have a backlog of some sort) so the banks charge you extra knowing you don't have any money to pay it! Sounds just like a back street loan shark to me.
  • m a.
    Rent a Center is a State sanctioned loan shark scam., Using systematic false advertising and gimmick tactics to lure victims. All ambitions are lawful except those which climb upward on the miseries or credulity of mankind. -Joseph Conrad, A Personal Record

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