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If payday loans can be cheaper than unarranged overdraft borrowing, what does it mean for banks? PDF Print E-mail
Wednesday, 10 August 2016
Payday loans have a reputation for high interest rates and fees – the prohibitively expensive option. Yet, according to consumer group Which? borrowing money on an unarranged overdraft can be more costly than a payday loan. The Financial Conduct Authority introduced a cap on payday loans last year to protect borrowers. They haven’t yet done the same to unarranged bank overdrafts. 

Daniel O’Boyle, director at Provenir, a risk analytics and decisioning platform, believes that this could have massive consequences for banks: “If payday loans can be cheaper than unarranged overdraft borrowing then banks may lose out on a traditional revenue stream.

Banks and payday lenders form part of an industry where regulations support integrity, fair competition and consumer protection. With unarranged overdrafts, it is arguable if banks are acting in the best interests of consumers under stress.”

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