A number of banks are charging fees for making overdraft facilities available a practice that could be illegal.
According to the Usury Act, banks may not charge you overdraft facility fees whether these are initial fees for assessing creditworthiness or annual service fees to review your account. They may only charge you a monthly fee for the administration of your account.
The Department of Trade and Industry, which is responsible for the administration of the Usury Act, said it could not comment immediately on the situation.
Whether the practice is legal or not there is no set policy among banks on the issue, with some banks not charging any upfront fees.
A Personal Finance investigation also revealed that there are also inconsistencies among different branches of the same bank.
Besides the high rate of interest on overdrafts, there may also be hidden costs such as charges which kick in when you use the loan and costs deducted from your account for investigations into your creditworthiness.
Before you accept or apply for an overdraft, you should check whether your bank will charge you an overdraft facility fee and, if so, how much.
A Personal Finance reader was recently slapped with a R100 fee for an overdraft facility which he did not apply for, but which First National Bank had offered him.
Ann Bramhill, FNB Public Relations manager, says overdraft fees are entirely at the discretion of the branch manager who will assess a customer's request by taking into account:
* The client's relationship with the bank;
* The nature of the customer's other services and products like home loans and investments;
* The client's track record relating to how well he has managed his account;
* How previous overdraft or loan facilities were conducted; and
* The suitability of the surety offered by the client.
Bramhill says FNB's overdraft facility fee would depend on the depth of the investigation needed to establish the viability of granting the overdraft and the results of the investigation.
"A customer with a long association with the bank who uses other services would require little investigation and might pay a lower fee than a client who used no other services and has been with the bank for only a few months."
Similarly, Nedcor branches may institute charges for overdrafts to individual cheque account clients at their discretion although no official charge is levied for an overdraft facility for both individual and small business clients.
Nan Eyles, Absa media relations officer, says Absa levies no charges for overdrafts, although interest rates differ from client to client depending on factors such as the type of package held and the risk factor of the client.
Yet, an Absa client who was offered an overdraft facility which she never uses, says the bank this year charged her R100 for "reviewing" her overdraft facility.
Absa's response is that it is not official policy to charge clients for overdraft facilities and that clients who are charged facility fees should bring it to the attention of their branch managers.
Eyles says for an overdraft under R500 000 an additional 0,25 percent will be added to the annual interest rate the client is charged for the overdraft.
She says when facilities are negotiated with the client, the difference between the annual interest rate and the additional rate for putting the facility in place is reflected and is also reflected in the letter sent to the client confirming the overdraft facility.
The client only pays the additional 0,25 percent when the overdraft is utilised. So the fee does not come into effect just for having the overdraft facility.
Standard Bank's retail division does not charge overdraft facility fees to individuals or small businesses.
Spokesman Gareth Richards says arrangement fees apply in commercial banking where medium to large businesses are involved and where the complexity of the overdraft facility or its structuring warrants a charge for the professional expertise involved.