While the high APR is usually the weapon of choice for people like MP Stella Creasy when they want to beat payday loans over the head, the BBC’s Money Box says it has found UK banks are charging APR at a rate of 800,000%. (What is APR?)
The radio show – which goes out Saturday lunch and repeats Sunday nights at 9pm – found someone borrowing £100 for 28 days from Santander without an agreed overdraft facility would have to pay back £200 which equates to an APR of 819,100%
With popular payday lender Payday Kong having an APR of just 1286% it means Santander are 636 times more expensive than taking out a payday loan.
Of course, the banks have been quick to point out that using APR for such short term loans is misleading but that doesn’t stop it being used against the payday lenders.
Barclays offer an agreed emergency loan and that didn’t do much better. Anyone using their pre-arranged emergency borrowing facility is charged £22 for every 5 days they are in the black which means the £100 would cost £88 after 28 days – an APR of 366,000%
The Radio 4 show reported its findings on the BBC website as follows:
The maximum charged for borrowing £100 for 28 days from a payday loan company is £42.
That is compared to 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.
In 2009, UK banks won a Supreme Court case that had been brought to challenge the legality of large overdraft charges.
In explaining his ruling, the Supreme Court’s president, Lord Phillips, said that bank customers 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.
But in the aftermath of the ruling, most banks did agree to reduce the level of their charges.
However, although the charges have been reduced in some cases the number of times a customer can be charged in one month has gone up.
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”.
That doesn’t explain how Barclays are getting away with offering an agreed loan service with an APR close to 1 million percent though does it?
It doesn’t do much for Stamford man Marc Daffern either who was sent a bill from his Natwest bank for £775 in charges for an unpaid direct debit of just £6.99
Marc told the BBC: “I was offered to be allowed to pay it off at the lower amount of around £400 but I wasn’t willing to do so because as far as I’m concerned I shouldn’t owe them any of this money in the first place.”
If MP’s like Stella Creasy really want to look for so called ‘legal loan sharks’ they should start with the banks who are legally allowed to charge whatever they want WITHOUT making it clear what the rates are.