Many industry leaders recognize that APR is easily understood by most , even if it is not exactly applicable to a payday advance. Therefore, My Payday Loan provides customers with both the actual payday advance fee and the hypothetical APR to help consumers make direct comparisons to loans, credit card advances, and other options.

My Payday Loan believes that the best way to help customers understand APR and the cost of Payday Advances is to compare them with the cost of other solutions to their short term lending needs. Interestingly, in all of the examples below, the lender we compare the payday advance with is not obliged to disclose the APR of this borrowing, so a real comparison by APR is impossible:

Example 1: Abbey's charge for making a debit card payment with insufficient funds in the account is £20:

In February 2005 a My Payday Loan customer made 12 payments totalling £96.50 using her debit card whilst overdrawn and was charged £240 (£20 x 12 payments) by Abbey.

The £100 payday advance she used the following month from My Payday Loan to help her meet her financial commitments cost her just £20 in charges.

Example 2: Halifax's charge for not clearing a cheque is £35. The following text is the complete body text of a letter sent by Halifax to a payday advance customer on 11 May 2005:

"We haven't been able to pay the item(s) shown below because there wasn't enough money in your account

To cover our costs, we make a charge of £35 (maximum 3 charges per day) for any item we can't pay. We will take this money from your account seven days from the date of this letter. If this causes you to have an unauthorised overdraft, we will also charge you interest at the unauthorised rate and a monthly unauthorised overdraft fee of £28. However, if your unauthorised overdraft is £30 or less the unauthorised overdraft charge will not be applied.

We appreciate that nobody likes paying charges and we'd like to help you avoid them in future. We've provided an online banking service that allows you to view an up to date statement of your account, details of your standing orders and direct debits and much more. For full details of the service log on to www.halifax-online.co.uk.

Should you wish to discuss your borrowing needs, you can make an appointment by visiting any branch.

Where we haven't paid a cheque or standing order, please don't forget to make other arrangements for this payment. If the failed payment is a direct debit, you'll need to contact the collecting organisation to see when they'll try to collect the money again."

Example 3: Abbey's charge for allowing a direct debit to be attempted with insufficient funds in the account is £32:

In January 2005 a payday advance customer had a direct debit fail. The company to whom the direct debit was payable tried to take the money again 7 days later. Both times, there were insufficient funds in the account, so Abbey refused to pay the direct debit and charged the customer £32 - £64 in total!

In this case, the client paid £64 but did not actually borrow any money, because Abbey did not make the payment. The following month the customer used a payday advance to borrow £200 which allowed the direct debit to be made, costing only £50 in charges.

Consider also if the direct debit had been for a utility bill and as a consequence of the payment not being made, the customer lost service. Typical re-connection costs for electricity or phone begin at £30.

Incidentally, in case this is not bad enough, in the same month Abbey also charged the client £80 for 4 unpaid debit card transactions, as in Example 1, for a total of £25.56, making the total charges for the month £144 plus the cost of an unpaid Direct Debit.

Example 4: NatWest recently (1 March 2005) increased its "card misuse" fee from £25 to £35:

The trend is getting more expensive across the highstreet banking sector.

So, Why Not Use APR As A Measure Of Payday Advance Costs?

Using APR calculations to evaluate payday advance fees is like looking at a thermometer to see if it is going to rain; APR simply wasn't created for this purpose. APR is an appropriate measure for long term loans and allows them to be easily compared.

Just as banks do not see APR as a useful measure in explaining the charges above to clients, APR is not a useful measure for Payday Advances. The real factor in calculating the appropriateness of the charges to payday advances is to compare them against the competitors (above) and to evaluate the costs involved with providing a payday advance (evaluating the client's creditworthiness, transferring the funds to the client, and taking the repayment). A comprehensive examination of payday advance charges must factor in these items.

My Payday Loan charges.