Lloyds Bank scraps unplanned overdraft charges

The UK’s largest current account provider, with more than 20 million personal current account customers, said more than nine in 10 of those with its brands Lloyds Bank, Bank of Scotland and Halifax will be left either better off or in the same position financially.

Lloyds said its new approach will be “simple, clear and will give customers more control of their overdraft borrowing”.

The lender said it had listened to customer feedback and that the changes will come into force from November.

The Group has over 3 million basic bank accounts in products that charge a fee for missed payments.

These fees will be removed from all basic bank accounts in November, with Lloyds Bank, Halifax and Bank of Scotland all writing to all customers at least two months before the new overdraft approach comes into effect to clearly set out the changes.

Key features include:

With the new single rate, a Lloyds Bank customer with the Classic current account who goes overdrawn by £100 within their planned limit for 10 days, will pay £1.40. Previously, they would have been charged £6.38.

A Halifax customer with a Reward current account, who goes overdrawn by £100 up to their planned limit of £100 for ten days, and is also unplanned by £50 for two of those days, will pay £1.40. Previously they would have been charged £18.00

Across the industry banks also allow some customers to temporarily access an unplanned overdraft, for example when a budgeting error means there would be insufficient funds to clear a direct debit. At the moment, a customer who goes beyond their limit would typically face charges for being in an unplanned position. In future they will face no such charges. Additionally, in situations where an unplanned overdraft isn’t authorised and a payment is stopped, there will be no returned item fees.

The average debit balance for a Lloyds Banking Group customer using their overdraft is typically around £450 a month.

Vim Maru, group director, customer products & marketing, Lloyds Banking Group, said: “This new approach is simple and clear, giving customers more control of their overdraft borrowing and how they manage their finances. When asked about our new approach, over 80 per cent of customers said that they preferred it compared to the current charging format.”

Mike O’Connor, chief executive, StepChange Debt Charity said: “We welcome a new approach that makes the cost of overdraft borrowing more transparent and removes unplanned overdraft and returned item fees. Around half our clients have struggled with overdraft debt so we are pleased to see a specific focus on helping borrowers with larger overdrafts to stay in control of their finances. This looks a positive step forward, but there is a need to monitor what happens next, not least for the questions this announcement poses for the overdraft market as a whole.”