The Lloyds Banking Group – Lloyds, Halifax and Bank of Scotland – are changing overdraft charges for customers from August. Some are increasing, some are reducing.
The new 19.9% and 29.9% charges are lower than most major banks. But the new 49.9% charge will be the highest overdraft rate charged by a high street bank.
The current charges
This is the first change since 2020. Before that Lloyds customers had faced a rollercoaster of changing overdraft methods and rates, with 4 changes in 4 years.
Most customers at the moment pay 39.9%. But Club Lloyds customers (who pay a monthly account fee for various benefits) are charged 27.9%.
The new overdraft charges
A new set of tiered overdraft charges is being introduced:
- 19.9%
- 29.9%
- 39.9% (the rate most customers are currently on)
- 49.9%.
Some of the increases will be introduced in two stages:
- people who are seeing an increase from 39.9% to the new top rate of 49.9% will have a 5% increase in August and then another 5% increase in January 2025;
- Club Lloyds customers who are being switched to a 39.9% rate will see a rise of 7.5% in August and another 5% in January 2025.
Why are people being moved up or down?
A small, unscientific poll I ran suggested that more customers are seeing an increase in charges than a decrease.
The letters I have seen say something like:
The interest rates we charge are based on the credit information we have about you and how you use your accounts that you have with us.
Which doesn’t give much clue. And the details of a few people’s situations don’t cast much light on this either:
- one person who only had a £50 limit with Bank of Scotland and said she “barely used it” is seeing an increase to 49.9%
- one person who wasn’t using her Lloyds account at all had a decrease from 39.9% to 29.9%
- a Club Lloyds account holder who never uses the overdraft is facing an increase to 39.9%
- someone in a plan with Lloyds to reduce her limit is seeing her rate go up from 39.9% to 49.9%.
Is this new structure fair?
If Lloyds had increased all rates by 2% that would not be welcome but would just be a commercial decision by a bank.
But I think there are two problems with the new tiered rate structure.
First it is a move backwards to the old complex pricing structures before the FCA reforms in 2020. The pricing for an individual banking with part of the Lloyds Group will still be a single rate. But anyone thinking of switching their account to Lloyds will have no idea what rate they may be offered on an overdraft, making comparisons – and any hope of competition reducing rates – less likely.
Secondly, if customers who are in difficulties are moved to a higher rate, that will cause them more problems. The FCA set out a list of possible Interventions to support customers with repeat overdraft use in 2023 – unsurprisingly increasing overdraft charges was not one of them! It is hard to see how this is compatible with the Consumer Duty.
Are you a “repeat overdraft user”?
Overdrafts are meant for temporary borrowing.
HMRC’s failure to pay half a million people Child Benefit on Monday this week is a classic example. If that meant someone had to dip into their overdraft for a couple of days until the Child Benefit was paid, the charge would have been low. The overdraft would have been a convenience to the customer, perhaps stopping direct debits from being rejected.
And if someone loses their job and takes a couple of months to find another one, an overdraft can be a real help in bridging the gap.
But too often people become trapped with large overdrafts they are unable to effectively clear. Sometimes they are larger than the income being paid into the account. Sometimes the customer is “back in the black” for a day or two when they get paid but then increasingly in the overdraft when bills come out.
Does this sound like you? If it has been going on for more than 18 months, your bank should have noticed this and offered support.
You may be able to win an affordability complaint and get a refund of some of the overdraft charges. Read Problem overdraft? How to ask your bank for a refund of interest which explains more and has a template letter you can use.
