Lloyds Bank slammed for making overdraft fees more expensive and complicated for customers
Labour MP Rachel Reeves has criticised Lloyds Bank for introducing new, complicated rules ahead of a watchdog crackdown next year
LLOYDS Banking Group has been slammed for introducing confusing new rules around overdraft fees ahead of a watchdog crackdown next year.
Under the new rules consumers could pay annual interest of up to 61 per cent, meaning many household bills will rise.
On top of this, the new structure introduces tiered charges depending on how much you borrow, making it far harder for people to work out what they owe.
The move comes only months before a planned crackdown on overdraft fees by the watchdog that regulates the banks, the Financial Conduct Authority.
In December last year, the FCA published proposals to completely overhaul the overdraft system, making sure that people weren't ripped off by unfair charges, and could easily understand what they would have to pay.
But Lloyds new system flies in the face of this.
What the proposed watchdog rules say
THE banking watchdog announced last month that it would overhaul the way that banks charged for overdrafts
Proposed measures include:
- Ensuring the price for each overdraft will be a simple, single interest rate – no fixed daily or monthly charges.
- Tackling the highest costs in the market by stopping firms from charging higher prices when customers use an unarranged overdraft.
- Banning fixed fees for borrowing through an overdraft.
- Mandating that arranged overdraft prices must be advertised in a standard way, including an APR to help customers compare them against other products.
- Issuing new guidance to reiterate that refused payment fees should reasonably correspond to the costs of refusing payments, and explain the costs that may be included.
- Telling banks to do more to identify overdraft customers who are showing signs of financial strain or are in financial difficulty, and to help them to reduce their overdraft use.
Labour MP Rachel Reeves, who chairs the Business, Energy and Industrial Strategy select committee, said: "While these fees might be legal, they are not within the spirit of the FCA's recommendations."
";It is unacceptable for financial institutions to try to game the system at the expense of customers, particularly those struggling with their finances."
Around a quarter of current account holders who use one of Lloyds Banking Group's banks will be affected.
The changes will come into effect on January 14 for Bank of Scotland customers, January 28 for Lloyds Bank and February 4 for Halifax customers.
Lloyds argues that it hasn't done anything wrong, as its interest rate changes were announced and communicated to customers before the FCA proposals were published.
A Lloyds Banking Group spokesperson said: “We welcome the FCA’s move to simplify the structure of overdrafts and the cost of unarranged overdrafts - our recent changes to planned overdrafts were announced prior to the FCA’s latest recommendations.
"We were the first major bank to remove charges for unarranged overdrafts and returned item fees and our overdraft charges are proportionate to what is actually borrowed, making it easier for customers to understand the total costs involved.”
But Reeves is calling for Lloyds to amend its new structure, in line with the FCA's recommendations.
She concluded:"Lloyds should rethink these fees as a matter of urgency.
"We need an end to the excessive fees that continue to harm borrowers particularly those with persistent money problems.”
The much-needed crackdown comes after we reported how borrowers are being charged more interest by banks for unauthorised overdrafts than if they took out a payday loan.
In February last year, new rules forcing banks to alert customers via text message before they slip into the red came into force.
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