Britain’s biggest banking group, which includes Lloyds, Halifax and Bank of Scotland, is to introduce a controversial shake-up of its overdraft charges.
The group plans to abolish unauthorised overdraft fees and charge a flat rate of 1p a day for every £7 borrowed. Charges for missed payments will also be scrapped.
While the changes sound good for the customer, financial analysts are not convinced the shake-up will benefit those with Lloyds, Halifax and Bank of Scotland accounts.
A fee of 1p per day for every £7 borrowed is equal to a 52% interest rate.
By comparison First Direct and Metro Bank charge less than 18%.
If you have a Club Lloyds account and your balance stays at £2,000 overdrawn for 12 days you’ll accumulate £17.47 is charges under the current system.
But under the new scheme it will cost almost double – £34.29.
Andrew Hagger, of Moneycomms.co.uk told the Liverpool Echo http://www.liverpoolecho.co.uk/news/liverpool-news/lloyds-halifax-bank-scotland-shake-13320911 , said: “This is a fairly radical move by Lloyds Banking Group and will be welcomed by customers who have, in the past, been hit with high unauthorised charges under the bank’s existing tariff.
“But for those borrowing sums in four figures, the new tariff starts to get more expensive.”
And MoneySavingExpert.com founder Martin Lewis said: “The big picture here is good news. Charges for breaching your overdraft limits have been a scourge for many years.
“The big problem with these banks charges has always been that they’re punitive, designed so that they are a struggle to repay, meaning charges on the charges. Some people wound up owing thousands after just one or two small financial issues.
“The legacy of the bank charges campaign has been a slow softening of this system. I hope that the Lloyds announcement today signals the final death knell for the charges.
“Yet even after this it still won’t make being overdrawn cheap. People often pooh-pooh credit cards, but if you’re overdrawn debit cards are debt cards too – shifting to a bank with a 0% overdraft and using that to give you respite to clear the debt is the best option.
“And anyone who has had bank charges, which have contributed to them being in financial hardship, may still be able to reclaim them and get hundreds back. There’s full help and free template letters at www.moneysavingexpert.com/reclaim/bank-charges .”
- What are the changes?
Arranged overdraft fees will be a flat rate of 1p per £7 borrowed.
There won’t be any unarranged overdraft fees and charges.
There will be no fees for missed payments
Fee-free buffers on many accounts (eg, £25 on Lloyds/Bank of Scotland Classic and £50 on Halifax Reward) will be reduced to £6.99.
Overdraft fees will be charged at the end of each day rather than once a month.
All customers who’ve given their mobile number will be sent text alerts when their balances are low.
- Will I be better or worse off?
The average Lloyds Banking Group customer who uses their overdraft owes £450 - borrowing this for a week under the new structure will cost £4.48, compared to £7.49 currently with a Bank of Scotland Classic account.
It’s hard to give an exact cut-off point where the changes will make you better or worse off, as it depends on how much you’ve borrowed and for how long, and which account you have, but as a rough rule of thumb:
If you use an unarranged overdraft of any amount. You’ll be better off, as you’ll no longer face any charges. Lloyds Banking Group has told us that customers would typically only be able to go into an unarranged overdraft by tens of pounds for a couple of days.
If you use an arranged overdraft of less than £650 ish. You’ll probably be better off, or unaffected by the changes.
If you use an arranged overdraft more than £650ish. You’ll probably be worse off.
- When do the changes happen?
Lloyds Banking Group say the changes will come into affect this November, and will be automatic, you will not need to do anything.
You’ll be contacted at least two months ahead of the changes, and if you’re one of the people who’ll be worse off, will be offered a “tailored transition plan” to review other possible options.
- What does Lloyds Banking Group say?
Lloyds says it is bringing in the changes after listening to customers.
It says that nine out of 10 customers with Lloyds Bank, Bank of Scotland and Halifax accounts will be either better off or in the same position financially when the new system comes in.
Simon Kenyon, of Lloyds, said: “We think this new approach to overdrafts is simple, because it’s a daily rate and no other fees, and clearer because it’s based on how much a customer borrows and for how long.”