Using an overdraft at a high street bank can cost more than taking out a payday loan, research has shown.
Which?, the consumer group which conducted the study, said that the mainstream credit industry was in as much need of regulation as the much-criticised fringe players.
The research shows authorised overdrafts with a leading bank can be as costly as a payday loan with companies such as Wonga. For example, borrowing £100 for 31 days will cost £30 with a Halifax authorised overdraft or £20 with some Santander accounts.
Read it all (subscription required).
“the mainstream credit industry was in as much need of regulation as the much-criticised fringe players.”
We’ve known that for decades in the US of A but haven’t had the courage to do anything about it. For obvious reasons.
The entire war on major payday loan firms ignores a number of facts, including the comparison of payday loan rates to bank overdraft rates. It is not uncommon for payday loan firms to provide not only check-cashing services but also the provision of money orders at no charge to their check-cashing and loan customers, who as a general rule do not have a bank checking account. Firms which provide such a service need to be recognized as providing value for custom, something which intransigent opposition to such lenders unfairly fails acknowledge.
The recent encouragement of credit unions is a welcome phenomenon. I know from personal experience that a good credit union can be a more cost-efficient solution for those who can join them, than do either banks or payday loan firms.
To use my own experience as an example, my principal banking organizations are Navy Federal Credit Union and USAA, both of which offer membership to active, retired and former members of all branches of the uniformed services, and their immediate family members/survivors. With either of those banking institutions, I can pay any creditor via either a credit card which also functions a debit card, or a check. Either option allows me to make such payments at no—as in 0 (zero)—expense to me, as long as I have access to a PC connected to the internet. The net cost of my checking account is therefore less than $0.50 per year (I do write enough paper checks that I need to have a new book of blank checks printed every 4-7 years).
The other payments (via a no-charge Web Bill Pay service) are sent by Web Bill Pay to the payees at no charge for postage or envelope. My responsibility to Navy Federal is to keep $5.00 on deposit in my savings accounts, and to schedule the payments in time to arrive by the due date. USAA also provides, in addition to the Web Bill Pay service, a comprehensive investment service: stocks (exchange and OTC), bonds, and mutual funds (proprietary as well as publicly traded).
I strongly suspect that there are a fair number of people (specifically every uniformed service member and member of his/her immediate family) using payday loan places for check cashing that could be using either or both of these banking institutions, but are unaware of them. Both institutions also provide a variety of means of depositing cash and checks. NFCU has cooperative ATM relationships with banks across the country. USAA deposits can be made at almost any UPS store using the account owner’s ATM card.
Web Bill Pay and participating credit unions are just two examples of institutions through the use of which almost anyone’s cash and check banking expenses can be brought so close to zero as to be non-existent.
Pax et bonum,
Keith Töpfer
Dan Crawford,
Read my comment following yours, and recognize that the answer, at least for many of our fellow citizens, is within their grasp. We don’t need yet another bureaucracy, nor a bureaucratic solution, to solve the problem for many folks.
Pax et bonum,
Keith Töpfer