By Daniel Hunter

Which? has launched 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.

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