Which? says it time to clean up credit

Which? is today launching a  new campaign to clean up the entire credit market after new Which? research finds that other forms of credit can be as expensive as payday loans.

The payday loans market has rightly attracted criticism for some of the worst practices in the credit market, but our new research finds that in some cases using an authorised and unauthorised overdraft with your bank can be just as expensive. Borrowing £100 for 31 days will cost £30 with a Halifax authorised overdraft or £20 with some Santander accounts, and borrowing the same amount for the same time with a payday loan company costs between £20 and £37.

The research also shows that, similar to rolling over a payday loan, people can rack up sky high default charges if they use an unauthorised overdraft, and be hit with high interest and charges if they stay in their unauthorised overdraft for long periods. With the Halifax Reward current account and the Santander Everyday Account it can cost £100 in charges for going £100 into an unauthorised overdraft for a month.

The Financial Conduct Authority’s (FCA) proposed new rules to clamp down on lenders won’t cover high penalty and default fees for payday loans, overdrafts and other high-cost credit products. Which? thinks this is a major omission and has launched the Clean Up Credit campaign calling on the FCA to crack down on poor lending and unscrupulous practices across the whole market. We want to hear from consumers about their experiences of using credit, and we will share this with the FCA to encourage it to set tougher new rules.

Which? is also fully supporting the cross-party ‘Charter to Stop the Payday Loan Rip-off.’ Developed by Paul Blomfield MP, the Charter will set out a number of recommendations to ensure the payday loan sector is treating borrowers fairly.

Richard Lloyd, Which? executive director said:

“The Government and regulators have rightly focused on the scandal of payday lending, but they must not lose sight of the urgent need to clean up the whole of the credit market. High street bank overdraft fees can be just as eye-watering as payday loans.

“Consumers need the credit market to work competitively. It’s time to clamp down on excessive charges and irresponsible lending, and to make sure borrowers are being treated fairly whatever form of credit they’re using.”

Which? has set out five ways the FCA should act to clean up the whole of the credit market and send a clear message to irresponsible lenders:

  • Ban excessive default fees and charges – the FCA should require that the level of default charges should reflect lenders’ actual costs, and there should be a cap on the total amount of default charges.
  • Crack down on irresponsible lending – the FCA should enforce strong rules on affordability checks that properly take into account a borrower’s income, expenditure and ability to repay the debt, including any outstanding credit commitments.
  • Put people in control of their credit – end unsolicited increases in credit limits, unauthorised overdrafts should be opt-in only and there must be a limit to the number of times high-cost loans can be rolled over.
  • Clear and transparent information – the cost of credit and all fees and charges should be transparent, and for high-cost credit should be displayed clearly as pounds per £100 borrowed over 30 days. Credit products should come with clear health warnings explaining the consequences of missed payments.
  • Swift and early intervention for people in financial difficulty – the FCA should force lenders to freeze charges for borrowers in difficulty, and prevent them from charging interest on high-cost loans beyond 30 days after borrowers default. Lenders must help borrowers in difficulty and refer them to free independent debt advice.

People can share their experience of using credit at: www.which.co.uk/cleanupcredit

NOTES TO EDITORS

1. Which?’s latest consumer tracker, which monitors how consumers are coping with their finances, shows:

·         4% (around 1 million households) take out payday loans each month;

·         Nearly half (46%) of people are worried about their household level of debt.

Which? findings on credit have revealed:

·        Eight in ten of us (79%) – around 38.5 million adults – use some form of credit

·        Four in ten (38%) of people who take out payday loans use them to pay for essentials like food or fuel.

·        A quarter (24%) of people with payday loans use it to repay other credit.

·        Seven in ten (69%) of payday loan users have regretted taking out credit in the past and half (49%) of payday loan users have taken out credit it turned out they couldn’t repay.

·        Three in ten (28%) of credit users say they don’t like debt but see it as a necessary part of their life.

The latest information and research on consumer credit and spending can be found on the Which? Consumer Insight Tracker http://consumerinsight.which.co.uk/

2. Which? has consumer advice regarding payday loans on its website www.which.co.uk/consumer-rights/action/how-to-complain-about-a-payday-loan-company/

3.   Summary of Which? findings on overdraft and payday loan costs

 

AUTHORISED OVERDRAFTS

The cost of borrowing £100 for a month (a) (in £)

Halifax Reward Current Account

30

Santander 123 Account

20

Santander Everyday Account

20

Nationwide FlexDirect

16

NatWest Select Account

8

RBS Select Account

8

Bank of Scotland Classic

7

Lloyds Bank Classic

7

TSB Bank Classic

7

Barclays Bank Account

2

HSBC Bank Account

2

Co-operative Bank Current

1

Nationwide FlexAccount

1

Clydesdale Bank Current Account Plus

1

Yorkshire Bank Current Account Plus

1

First Direct First Account

0

UNAUTHORISED OVERDRAFTS

The cost of borrowing £100 for a month (a) (in £)

Halifax Reward Current Account

100

Santander Everyday Account

100

Santander 123 Account

95

NatWest Select Account

90

RBS Select Account

90

Bank of Scotland Classic

82

Lloyds Bank Classic

82

TSB Bank Classic

82

Clydesdale Bank Current Account Plus

52

Yorkshire Bank Current Account Plus

52

Co-operative Bank Current

22

HSBC   £2 based on this being the first time you’ve used the unauthorised overdraft in six months £2 – based on being the first time the unauthorised overdraft thas been used  in six months
First Direct £1 – based on being the first time the unauthorised overdraft has been used in six months
Nationwide FlexDirect

n/a

Barclays Bank Account

n/a

Nationwide FlexAccount

n/a

PAYDAY LOANS

The cost of borrowing £100 for a month (a) (in £)

Wonga.com (b)

37

The Money Shop (c)

30

Payday UK (c)

30

Quickquid (c) (d)

20-30

Cash Lady (e)

29

 

[a] Cost rounded to nearest £.
[b] 30 days
[c] Loan to your next payday, so period may be shorter than 31 days.
[d] Cost of credit depends on your credit rating.
[e] 28 days

 

 

 

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