For those concerned about inflated bank charges in India, this should be an eye-opener. Banks operating in the United Kingdom have been accused by business secretary Vince Cable of "ripping off" customers after research showed that people with unauthorised overdrafts were being charged average interest of 167 per cent a year. The study also showed that interest rates could soar as high as 3,650 per cent for some customers.
According to a report from SG Hambros, customers are being charged an average of 167 per cent a year on unauthorised overdrafts once fees and penalties are taken into account. The additional charges people face when they go overdrawn can include a fee for using their overdraft, a charge for direct debits which are honoured even though there is insufficient money in the account, and a fee for any payments that bounce.
Cable says that banks are failing to be transparent over the fees they charge, and he believes that consumers are losing out because of a lack of transparency. His comments came after the Hambros research found that many consumers were paying far higher interest on authorised and unauthorised overdrafts than the rates advertised by banks, once additional charges had been factored in.
The research indicated that once these fees were included, the average annual rate charged for an authorised overdraft by the high street banks was 32 per cent, despite the fact that many accounts advertised rates of around 19 per cent. The average annual charge was even higher for people who went into the red without permission, at 167 per cent.
Halifax, which is owned by the part-nationalised Lloyds Banking Group, charges customers who overdraw a flat fee of £1 a day. As a result, if a customer had an overdraft of £10 they would pay the equivalent of 3,650 per cent in annual interest and charges.
The British Bankers' Association (BBA) has defended the charges, pointing out that as overdrafts were designed to be used for only a few days. But Cable said, "Consumers have been ripped off, get a very bad deal, are affected very much by the complexity of a lot of financial transactions that are not transparent."