Lloyds Banking Group is reshaping its overdrafts to make them simpler. However, whether they will prove less costly for everyone is yet to be seen. How will these changes affect you?
In some very welcome news, we’re pleased to tell you that there has been some significant progress in our campaign against exorbitant unarranged overdraft fees. Today, Lloyds Banking Group has announced it is doing away with these fees.
This positive step sees Lloyds Bank, Bank of Scotland and Halifax simplifying their policies so that all fees and charges for unarranged overdrafts will be removed and, instead, all customers will pay a simple daily rate for using an overdraft with charges assessed on how much customers borrow and for how long. This new policy is due to be introduced in November.
Industry change is overdue
As you may know, unarranged overdraft fees have been a significant concern for Which? given the consumer harm caused by these charges, and we’ve been campaigning for change. What Lloyds has shown is that it is possible for banks to improve the way they operate their overdraft systems and therefore we now look to the other banks to follow suit.
This is, of course, not a magic solution – not everyone will be better off from this. So, it is critical that Lloyds Banking Group supports customers to help them avoid high charges and to reduce their level of debt.
Supporters helping bring about change
In order to show the harm caused by unarranged overdraft fees, today Which? submitted an evidence dossier to the Financial Conduct Authority (FCA) using the experiences that have been shared with us on Which? conversation and by supporters of the campaign. A lot of statistics have been bandied about in the overdrafts debate, but we wanted to ensure impact on individuals and their families is recognised and properly understood.
We heard from a lot of people with the same concerns as Adrian:
‘My bank charged me but it was their charges that sent me overdrawn and each month it becomes a vicious cycle. I’m on disability benefits, so I have limited income.’
Extortionate, disproportionate fees featured heavily in the stories we heard, like Mike’s:
‘My bank also charged me £30 per day for being overdrawn for just £2 for a total of 20 days. Then they also charged me with an unauthorised overdraft of another £30+ interest! Total cost nearly £1000 which was more than my wages! So I kept getting charged every month!’
Flo’s relation suffered a particular injustice when it came to fees and charges for letters:
‘The action of one bank caused a relative’s bankruptcy. If they went overdrawn, not only were they charged £70 for a letter but also another £80 for the unauthorised debt that the cost of the letter caused. This would then trigger another letter at £70. And so on. Despite this they offered to give them a loan as long as previous loans, some of which were nearly paid off, were consolidated into a new loan, ie ‘churning’. By their actions they caused more debt.’
We’re banking on further change
The FCA is currently reviewing high cost short term credit (including overdrafts) and we want it to use this review to ensure other banks follow Lloyds’s lead by restricting unarranged overdraft charges to the same level as for arranged overdrafts.
So, while it’s a big step forward today we know there’s still lots more to be done in this area. Hopefully our dossier of your experiences will help to make more change possible. Thank you to you all for sharing your experiences with us, enabling us to show the real life detriment felt by consumers.
What's your biggest concern about being overdrawn?
I'm more concerned about more vulnerable customers (38%, 327 Votes)
Size and fairness of fees for using unarranged overdrafts (34%, 298 Votes)
The fact that it could be avoided with some help from your bank (20%, 175 Votes)
Lack of communication from your bank about your situation (8%, 65 Votes)
Total Voters: 865
Are you an overdraft user? Have you been affected by extortionate fees in the past? Tell us whether you’re looking forward to these new changes, and why, below.