Credit, Collections & Insolvency News
Lloyds Banking Group has announced a simplification of overdrafts for its personal current account customers. According to Lloyds statement, the new approach will be simple, clear and will give customers more control of their overdraft borrowing.
“We understand that, across the banking sector, overdrafts can be complex and confusing for customers. Lloyds Banking Group has listened to customer feedback and is announcing changes to make overdrafts simple and clear from November 2017. More than 9 in 10 personal current account customers of Lloyds Bank, Bank of Scotland and Halifax will be either better off or unaffected financially by the changes. 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.”
Key features of the overdraft changes 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% 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.”
Mark Somers, Chief Operating Offcier at Credit Risk Consultancy 4most said “Today’s announcement from Lloyds follows Barclays’ decision not to penalise customers for unauthorised overdrafts, and we would expect other major banks to follow suit. The interest charges on unauthorised overdrafts are still high – currently higher than 68% APR, once typical charges have been included – and while lower than they were, there is still no sign of risk-based pricing.
“Their marketing of these charges as 1p in £7 per day is misleading, as it implies to customers that this is ‘cheap money’. A more responsible approach would be for banks to pro-actively offer to turn overdrafts that account for more than 25 per cent of monthly income into a repayment loan at a much lower rate.
“However, looking ahead we expect increased competition from open banking based services that collate overdraft debt into more affordable loans and other forms of money management services. This will, in turn, force high street banks to further reduce rates over time.”
Lloyds new approach to overdrafts comes into effect from November this year.
