Sometimes you have to marvel at the ingenuity of the UK banks in tackling criticism whilst protecting their income. Lloyds TSB is the latest high street giant to announce reductions in controversial unauthorised overdraft charges, whilst bumping up other fees to balance the books.

In a move designed to pacify both customers and other critics of the hefty charges, the monthly fee for ‘unplanned’ Lloyds TSB overdrafts has been scrapped and daily charges reduced. Sounds good right? How refreshing for a bank to take a financial hit in order to reduce fees for its customers.

Yeah, right. Most commentators - and no doubt many customers - noticed other charges had been introduced at the same time and the bank will no longer pay any interest on positive current account balances. In fact it’s the more ‘organised’ customers who will bear the brunt of the recent changes, with a new £5 monthly fee for planned overdrafts.

What’s more, the reductions in unplanned overdraft fees are significant, yet they were so huuuuuge in the first place that even the new, slimmer versions are pretty heavy. Anyone who is at the edge of their planned facility (already paying £5 per month for the pleasure), will then get hit with daily charges of £10 if they were to go a further £25.01 or more into the red.

For example, if you were on the limit of your planned overdraft and urgently needed £50 to pay an important bill, accessing that money for a week from an unplanned overdraft could cost you £70 in fees! Borrowing the same amount from Wonga over the same period would cost just £9.33, including our £5.50 fast cash transfer fee.

So, not only has Lloyds TSB ended free access to planned overdrafts with its current accounts (and interest payments on positive balances), but consumers could still get hit with some big costs when in need of some emergency cash. Now that’s a clever trick.�

Fascinating to see the UK banks’ latest defence of unauthorised overdraft charges. They came under attack from the BBC’s Panorama programme and Vince Cable, Business Secretary, this week. Here’s an extract from a Press Association article…

The banking industry has defended its fees after research suggested people with unauthorised overdrafts were being charged average interest of 167% a year.

Business Secretary Vince Cable accused the high street banks of “ripping off” their customers and failing to be transparent over the fees they levied.

He added that consumers were losing out because of a lack of competition in a marketplace that was dominated by a small number of big banks.

There’s no doubt that the world of overdraft fees is a murky one and it takes painstaking research to fully understand all the potential fees and interest rates to be potentially encountered on the high street - despite the relatively small number of players. 

But perhaps the most interesting aspect of the story was the response from the British Bankers’ Association, who argued that:

… as overdrafts were designed to be used for only a few days, it was impossible to calculate accurate annual lending rates.

This response somewhat misses the point concerning lack of transparency, but we can’t help but agree that an annualised measure isn’t the best way to look at the real of cost of something that’s used for a few days or weeks at most.

After all, Wonga is forced to display a typical APR for our short term loan service, despite the fact that customers borrow for a few days or weeks. The nature of the APR calculation results in a completely nonsensical number, so we also show the full cost of repayment.

But impossible? No, it’s not impossible, because unsecured lenders like Wonga already have to use an annualised measure, rightly or wrongly, for a short-term loan product that can provide a much cheaper alternative to going over your limit.

Perhaps the real reason the banks don’t want to apply APR to their overdraft charges is because of the impossibly huge numbers it would generate, as we have highlighted in the past on this blog.

UK high street banks are still under pressure to reduce the fees they charge for unauthorised overdrafts, despite winning a Supreme Court case last year, but they continue to find other ways to keep the money flowing in. This recent article in the Independent highlights the ’seesaw’ approach, with some controversial overdraft fees coming down, whilst other fees for regular use of accounts go up…

… the introduction of “more transparent” daily overdraft fees from Halifax last December and the new £5 monthly fees from Lloyds TSB from this December means that customers need to grab their calculators and double-check that their bank account is the most cost-effective for the way they manage their money over the month. For example, Alliance and Leicester charge 50p per day (up to a maximum of £5 per month); Halifax charge £1 every day a customer is overdrawn (£2 per day over £2,500); and now Lloyds TSB is going to add its two-penn’orth of confusion courtesy of an additional monthly fee on top of any interest already payable.

These are not unauthorised overdraft fees the newspaper is referring to, but charges for customers accessing an approved facility. As pressure has increased on fees for going over your agreed limit - sometimes as high as £20 per day - the banks have gradually nudged up the charges for approved overdraft use, giving them the ability to bring down some of the other fees.

Some of the fee structures being implemented are no doubt more transparent than they were, at first glance, but the motives driving these changes are anything but transparent.

Wonga provides a clear alternative for anyone considering going over their overdraft limit when in need of some emergency cash for a short period of time. We are a responsible lender and the cost will be fully displayed for you, before you apply.

Every business likes to offer flexibility these days; whether it’s a multitude of phone tariffs to pick from, a burger served with or without gherkins, open-ended DVD rentals or laptops available in every colour of the rainbow. But one industry that’s not famous for bending to your needs is the personal loans market.

Indeed, traditional bank loans are generally very rigid in terms of how much you can apply for and how long you’ll be making repayments. Typically you’ll be offered four or five fixed amounts when looking to get an unsecured loan - such as £3,000, £5,000 or £10,000 - plus a small choice of loan lengths, say from one to ten years. But what if you only need a small sum of cash for a few days or weeks?

Payday loans have taken off in the UK in recent years and cater for people in need of a few hundred pounds, but they are not much more flexible than bank loans in many cases and the costs are high. Generally you can only pick from a few sizes of loan, in increments of £100 for example, plus you’ll need to repay on your payday, regardless of when you apply. The fees charged are also usually fixed, with a set fee per hundred borrowed.

Wonga is bucking the trend for loan products that suit the lender, by providing small, short term loans on your terms. The loan calculator on the home page allows you to select exactly how much cash you need and then control the cost by deciding how many days you want it for. The shorter the cash advance, the lower the interest and cost of repayment. As you move the sliders to determine loan amount and length, you’ll see the exact cost of repayment changing accordingly.

What’s more, this level of flexibility continues once you’ve been accepted and have received your cash. By logging in to the My Account section of the site you can repay a Wonga loan at any time and save money on the original cost calculated. That’s because you pay interest by the day and there are no catches or penalty fees for early repayment - something else the traditional loan industry is renowned for.

When blogs or newspapers cover Wonga, or someone spots our TV ad for the first time and tweets about it, it’s rare that our typical APR doesn’t get mentioned. Indeed, it’s often the main talking point and people who don’t understand how the equation works (which is most of us), can leap to some scary conclusions. After all, we’re trained to compare APR when assessing the value of credit, yet there are two major problems with using APR to gauge the cost of ultra short term loans. 

For starters it was a measure designed to compare rates of charge on an annual basis, for traditional loans of a year or more. Yet the credit market has changed and when it’s applied to very short term loans such as a Wonga cash advance, it grossly distorts the actual interest charged - by not only multiplying, but also compounding it many times over. Take a Wonga loan of a week - actual interest charged is around the 7% mark, yet the official APR is over 2,000%. It’s so distorting that the APR number keeps going up as our loans becomes shorter and therefore cheaper - doing the exact opposite of what you’d expect a value comparison tool to do. 

It’s a view that was supported by the OFT when they published an interim report on short term credit, saying: “Consumers appear to find the inclusion of the total repayment amount more helpful than an APR in understanding the cost of short-term credit. This may be due to the information distortion which results when an APR is applied to low sums over short periods.” 

Secondly, APR applies to some credit products, such as short term personal loans and credit cards, yet other ways of charging for emergency cash are exempt, namely extortionate overdraft fees being used by UK banks. Which is where the headline for this post comes in… Yep, it does say two million percent.

An amazing story from the Observer tells of an Alliance & Leicester customer being charged £80 for going 15p overdrawn for eleven days, which equates to actual interest of more than 50,000% and a theoretical APR in the millions. So while we don’t believe APR is a helpful measure for consumers - certainly not based on our own customers’ feedback - the actual charges being made by High Street banks are the truly eye-watering numbers of the financial world. Yet they don’t affect everyone and can usually only be found in the small print, so they frequently go unnoticed.

Whatever you think of Wonga’s typical APR, we clearly and transparently calculate the cost of our tailored loans up-front and, to give you a quick example, the unfortunate bank customer in the story could have borrowed £150 from us over the same 11-day period and paid £22.37 in interest & fees. That’s roughly three-and-a-half times less the cost of bank’s charges, to borrow 1,000 times the amount of money!

Sure it’s an extreme example, but British banks are charging up to £20 per day on unauthorised overdrafts and only the fact they won a recent court battle, plus there is no headline-grabbing APR to calculate, means they keep getting away with it. It’s estimated UK banks made more than £2 billion from these charges last year alone, meaning it’s a huge source of revenue they will keep fighting to protect.

Here at Wonga we strive to make our service better and our customers even happier every day. Sounds like classic business rhetoric? Well, we back our claims up with actions and that is one of the things that makes us different from traditional lenders.

If you haven’t yet noticed, our latest improvement to the UK’s fastest and most flexible loan service, is to provide Wonga customers with even more flexibility.

Customers and first-time applicants can now tailor their cash advances to exactly meet their needs. That was always the case of course, but there were some small restrictions and we don’t like restrictions when they aren’t serving a good purpose! For example, you had to take a loan for at least five days and the smallest cash advance we provided was £50.

Now you can decide exactly how much you want to borrow, from as little as £1! We also increased the upper limits you can apply for, to £400 for first time customers and up to £1,000 for trusted customers who use the  service responsibly. 

You can also now control the cost of your cash advance by picking the length of your loan from as little as one day! This way you only pay for the exact online loan you need - not something fixed that suits us!

As always, you can then manage your account online and even repay us early with no catches, should your circumstances change. It really is Money your way!

Wonga launches its first ever TV advert this week, with the aim of letting even more people know about our flexible, online cash advance service. If you haven’t yet caught it on the box, you can check it out right here.

The theme is Money Your Way, because Wonga is the only lender in the land that allows you to choose exactly how much cash you want to borrow and then decide when to repay us, which determines the cost.

You can initially apply for any amount up to £400 and repay us between one and thirty-one days later. You can even repay early and save - with no catches because we are all about short term cash, not keeping you in debt.

We provide an instant decision around the clock and can send money to your account within minutes of approval - it’s a bit like having your own bank!

Talking to our customers we are used to great feedback and to hearing about their ‘Wonga moments’ – those particular times when their lives are made so much easier by taking a flexible loan to pay for an unexpected  expense or a great deal that might be otherwise gone by the time of their next pay cheque.
We heard one such story this week and it seems worth sharing it; a customer, let’s call her Miss K, found herself in a bit of a pickle when, after collecting money off her flatmates to pay their council tax, realised that the credit card she had with her didn’t have any funds.  She needed to deposit the money to pay the council tax the same day in order to avoid extra charges from the tax man.

On her lunch break that day, Miss K made a dash for her local bank branch, only find out that they were undergoing refurbishment and the counter services were suspended.  Just when she was about to fall in despair because she didn’t have her online banking security pad to transfer funds from one account to the other, she thought ‘Wonga!  She applied for a short term loan and had the money she needed in her account within 15 minutes!  The next day she managed to deposit the cash in her account and repay her loan, avoiding extra charges and paying interest on lengthy loans that she didn’t need

News outlets have been reporting this week on new regulation to enforce fair treatment of customers and clarity on charges by banks. The Financial Services Authority (FSA) has taken over the Banking Code Standards Board (BCSB) as the regulatory body for Customer Services Standard and, unlike the BCSB, it will have the power to impose fines if there are breaches in their conduct.

What the new rules say:

- A bank cannot refuse a refund on a fraudulent transaction just because the genuine card and PIN was used
- Savings account providers must give customers two months’ notice before reducing interest rates
- Unexpected debits made from your credit or debit card, such as from a car-hire firm, must be refunded by your bank
- From January 2012, all electronic payments must be credited to an account by the following business day. Until then, this can take up to three days

The rules are still not sufficiently clear for consumers to understand what their rights are, however, and without simple guidelines from where to draw information, they leave too much room for interpretation.
More importantly, these FSA rules cover savings and instant access accounts but don’t apply to unsecured loans, bank overdrafts or credit cards – the areas where the most unspecified and unclear charges often occur. 

Wonga is committed to transparency, and with our easy loan calculator you are always aware from the beginning of exactly how much you will pay back.

No wonder that Wonga customers love our service and send us amazing feedback – they can be in charge of their finances, avoid the pesky hidden charges and take a flexible loan that matches their requirements, not those of bank managers.

We recently highlighted the crazy fees still being charged for unauthorised overdrafts by the high street banks, despite pressure from government and the OFT.

A recent article by ThisIsMoney has now exposed the latest ploy by Halifax Bank of Scotland to extract more cash from customers with approved overdrafts. The popular financial site explains:  

The new charges are £1 a day for each day in an arranged overdraft up to £2,500, £2 a day for arranged amounts over this and £5 a day for unarranged overdrafts.

Although those with large overdraft balances may benefit, this will seriously penalise customers with relatively small overdrafts who stay within their limit.

The fixed fees will replace interest charged and HBoS argues that it simplifies the cost of going overdrawn. While it may be simple, the move draws attention to the high cost of regularly using an overdraft with the banking giant, never mind if you stray over your limit! The flat daily fee for unauthorised borrowing is an eye-watering £5 per day.

One angry HBoS customer is quoted as saying:

‘This is treating all customers as stupid. The only reason they are changing [their charges] is to increase their fees and to reduce the amount of overdrafts. I currently pay a minimal amount per month as there is a largish credit balance on my account for two weeks and then a small overdraft for two weeks. How can this be justified and why do they not tell the truth?’

A flexible Wonga loan is an alternative worth considering if you need some extra money for a short period of time. You can decide exactly how much cash you want to borrow and for how many days, which also dictates the cost. Unlike a bank overdraft, which is open-ended and requires discipline to manage sensibly, a Wonga cash advance must be settled within a month, on a date of your choosing. This allows you to deal with an urgent and short-term cash flow problem, settle the debt quickly and then get on with life.