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Some banks are charging customers several times the fees of payday lenders to borrow money, an investigation by Which? has found.

Looking at unarranged overdraft charges, the consumer group found that consumers needing as little as £100 could be charged over 12 times more by major high street banks than the amount the Financial Conduct Authority (FCA) allows payday lenders to charge.

Which? compared the cost of borrowing £100 for 28 days and found that charges at some high street banks were as much as £90 – up to four times the maximum charge of £22.40 on a payday loan.

It found that some RBS customers could face costs of £90, while customers at Lloyds, HSBC and TSB could face £80 in costs.

Unarranged overdrafts have already come under the spotlight recently as the Competition and Markets Authority (CMA) has proposed that banks should set their own monthly unauthorised overdraft charge cap, which they would have to show clearly.

It is hoped that this would encourage banks to compete to drive down the costs, rather than having a single charge cap.

But Which? has argued the proposals are unlikely to make much of a difference as many banks already put their own caps on charges. Which? said the FCA should review overdraft charges in the context of other forms of credit and crack down on “punitive” fees.

Alex Neill, director of policy and campaigns at Which?, said: “People with a shortfall in their finances can face much higher charges from some of the big high street banks than they would from payday loan companies.

“The regulator has shown it’s prepared to take tough action to stamp out unscrupulous practices in the payday loans market, and must now tackle punitive unarranged overdraft charges that cause significant harm to some of the most vulnerable customers.”

RBS said in a statement: “We encourage all of our customers to contact us if they are going to enter unarranged overdraft regardless of the amount or the length of time.

“This is an expensive method of borrowing and there could be a number of alternative solutions such as putting an arranged overdraft in place, and the costs are considerably less.”

Lloyds said unplanned overdrafts are designed for occasional spending rather than long-term borrowing and having an unarranged overdraft for a sustained period is not representative of typical current account behaviour.

The British Bankers’ Association said: “Across the board overdraft charges have plummeted since 2008, with consumers saving up to an estimated £928 million over the past five years.

“Banks are helping customers compare account charges in a variety of ways, from making them easier to understand to providing useful online calculators and mobile apps.

“They also itemise charges on bank statements and use text alerts to communicate important account information instantly. If a customer thinks they might go overdrawn, they should speak to their bank to arrange an overdraft to keep costs down. Some products allow a level of fee free overdraft.”

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