When I was living in England, all of my friends carried perpetual “overdrafts.” If they wanted more money than their account had, they’d go to the bank and basically arrange an informal, short-term loan by which the bank allowed them to draw on money that wasn’t really (or, as my friends saw it, wasn’t yet) there. They weren’t concerned about the fees that accompanied those overdrafts, since those fees were deferred too. If the banks didn’t care, why should they?
I thought it was a peculiar situation, insofar as it encouraged students to live far beyond their means. As for me, I spent what I had, and if I didn’t have it, I didn’t spend it.
Overdrafts are taking a whole new meaning in England, though, because it turns out that Muslims are getting the overdrafts, without really have to pay the fees. That is, they’re paying the fees, but the fees are nominal, as they are capped at 15 pounds, when compared to those charged to ordinary Brits, which can run up to about 200 pounds (emphasis mine):
Many Lloyds TSB customers are being hit with charges of up to £200 a month if they go into the red – while Muslims who use the bank are only being charged £15.
The part-nationalised bank has been accused of religious discrimination over the disparity between overdraft charges on its standard current account and its Islamic account.
The Islamic account was set up by the high street bank to attract Muslim customers by allowing them to keep faithful to their religion.
Sharia law does not permit the payment of interest so the ‘typical’ Islamic account at Lloyds TSB has been set up without an overdraft facility.
No interest is charged on Islamic accounts, while customers with a normal account are hit with charges of up to £200
If a Muslim customer who has insufficient funds in the account tries to make a payment, it is blocked and a ‘return item fee’ is charged.
However, on some Islamic accounts such a payment is authorised and an ‘unplanned overdraft fee’ of £15 is then levied.
The bank says this is a management fee, not a payment of interest, so does not contradict Sharia law.
Meanwhile, customers with standard current accounts who go into the red by at least £100 without authorisation are hit with an ‘unplanned overdraft fee’ of £20 a day for a maximum of ten days. This could mean a customer has to pay £200 in one month.
The bank tries to spin this situation as just a different kind of account that, while serving Muslims’ modest, interest-free banking needs, is available to everyone:
A Lloyds TSB spokesman said: ‘The Islamic current account is for customers who cannot receive credit or debit interest due to their religious beliefs.
‘All of our Islamic accounts comply with Islamic law and are available to anyone regardless of background or faith.
‘These accounts are structured differently to our traditional accounts and are designed to help prevent a customer slipping into the red. A comparison with the overdraft charging structure on other accounts is meaningless.’
The only problem with this spin is the statement in the article, which I’m going to accept as true unless proven otherwise, that “on some Islamic accounts such a payment is authorised and an ‘unplanned overdraft fee’ of £15 is then levied.” In other words, contary to the Bank’s public statement, Muslims can have the same overdraft fun as their Christian friends, but they don’t pay the same price. This makes Islam start looking pretty darn attractive to the average bloke who keeps outrunning his bank account.
UPDATE: I think Tonestaple’s comment deserves more prominence:
Islamic finance is based on the understanding of money of an 8th century trader who may not have grasped the time value of money. I think it more likely, considering that lots of other stuff in the Koran is based on Mohammed’s personal convenience (such as Mighty Mo not being limited to four wives like the other, ordinary men), that Mohammed didn’t like paying interest and didn’t understand why it is necessary, and so declared it illegal.
Sharia-compliant finance is based on pretending that there is no time value to money and therefore no need for interest. The way they get around it in mortgages is by determining the total cost of the house with interest on the loan and declaring that to be the value of the house and lending based on that. This raises a few interesting questions I have not seen addressed:
1. Who is doing a real estate appraisal that will declare the value of a house to be far, far above others in the neighborhood as the basis for lending the house value plus the interest?
2. And what happens to the tax assessments for the entire neighborhood when one house is sold with the grotesquely inflated value needed for sharia-compliant financing?
And finally, 3. Why on earth do people help muslims perpetrate fraud? There is a time value of money, and to pretend that there isn’t is to live in a little fantasy world.
Cross-posted at Right Wing News