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Are you over the moon with Lloyds’ new approach to overdrafts?

Overdrafts Dossier

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.’

Which? Overdrafts Dossier

Click the image above to the read our overdrafts dossier to the FCA. (PDF 1.9Kb)

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

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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.

Profile photo of AndrzejGrycuk

52%per year no thanks

Rod Varley says:
17 August 2017

I have a significant overdraft facility which I have had for 30 years and have been a Lloyds Bank customer for over 50 years. I use this facility a lot but regularly pay money into my account which either eliminates my overdraft or substantially reduces it. This costs me around £1,800 per year but they now want over £5,000 for the same usage.
I went into a Lloyds Bank this morning and they confirmed the figures.
Shylock only required a pound of flesh – Lloyds want to totally fleece this OAP!

Profile photo of malcolm r

Rod, my bank charges 50p a day if I go into overdraft up to my limit. Would this be a better arrangement for you? Alternatively, could you take out a personal loan and top up your account with it, rather than using an overdraft?

Bill Trevillion says:
22 August 2017

I have had an arranged overdraft of £6000 for many years and it cost me approx £75-£80 per month.
I never go over the limit, but have been unable to reduce it.
As from November the fees will increase to £265 per month – taken on a daily basis
I work full time but I am in financial difficulties and unable to get a loan
This will all but bancrupt me

Profile photo of wavechange

It might be worth talking over your problems with Citizens Advice as soon as possible, Bill. Your interest is helping to subsidise free banking for those of us who manage to stay in credit and few seem to care.

Profile photo of malcolm r

Have you tried to get a personal loan from your bank to put your account in credit? Have you discussed your problem with your bank to see how best to deal with your situation? It is nonsense to pay £3180 a year to service a £6000 overdraft. Seemingly one consequence of Lloyds policy of making unarranged overdrafts as acceptable as arranged. It raised the effective interest rate for higher overdraft users to over 60%, according to a report I saw. Presumably why your new charge has rocketed.

Profile photo of Bill Arthur

Lloyds will not entertain a loan to pay off the overdraft. I spent over 1 1/2 hrs on the phone to them yesterday. All they could suggest was to speak to a debt company helpline. I have banked with them since 1980 and have never incurred late charges or gone over my limit.
I am currently trying to arrange a loan with someone (at higher interst rates). Failing that – a DMP or bankruptcy beckons

Profile photo of Bill Arthur

A colleague I know has an overdraft of £15000 with Lloyds. I informed him yesterday of their plans come November 2nd and he is really worried (his payments will be £664 per month (taken from his account at £21.43 per day)

Profile photo of malcolm r

Clearly untenable situations. If both these examples pay the full cost of their overdraft each month, it suggests they were not in a position to gradually reduce their overdraft anyway; now it has been made impossible. Imposing such high new charges without providing a way out for existing users seems totally wrong; I consider they should apply to new users only, at least for a long enough period to allow existing users to sort out their finances.
“Arranged overdraft fees will be a flat rate of 1p per £7 borrowed.
There won’t be any unarranged overdraft fees and charges.
There’ll be no fees for missed payments.
Fee-free buffers on many accounts (eg, £25 on Lloyds/Bank of Scotland Classic and £50 on Halifax Reward) will be reduced to £6.99.
Overdraft fees will be charged at the end of each day rather than once a month.
All customers who’ve given their mobile number will be sent text alerts when their balances are low.”

1p doesn’t sound much. does it. but on £1000 it is £1.43 a day, and presumably the charges are made on overdraft fees as well. Simple interest would make this £522 a year – 52% interest – but the compounding of the charges will increase this. The daily interest rate is 0.143%. After 365 days the debt will be £1684.60 – an APR of 68.46%.

“If you use an arranged overdraft of more than £650ish. You’ll probably be worse off.
You’ll be contacted at least two months ahead of the changes, and if you’re one of the people who’ll be worse off, will be offered a “tailored transition plan” to review other possible options. ”
Has anyone been offered
acceptable options?

The only suggestion I can currently offer is to sell some assets to pay off your overdraft, or reduce it to a level where these excessive charges do not apply.

Profile photo of Bill Arthur

Amen. I am currently scouring the house to see if there is anything we can sell to reduce the O/D. Failing that, I have been advised that a DMP or Bankrupcy is the best way forward.
Lloys did offer to put me in ‘Collections’ – basically, they would remove my O/D facility and not allow me to withraw any of my wages without prior aproval from themselves – hmmmmm seems fair ………

Profile photo of malcolm r

The problem I think with a DMP or bankruptcy is that it will limit your ability in future to secure any finance and credit, won’t it.

Hate to suggest, but any car you can trade in for a cheap runabout? Any chance of a second job or weekend/evening work? I’m sure your priority is to get out of debt.

Profile photo of Bill Arthur

Thanks for the thoughts and advice Malcolm,
The car is a tricky one – I always had cheap runarounds, but because my employed work is a 35 mile round trip, it needs to be reliable & economical so I have a car on pcp . (public transport is a no-go for me as there are only 3 buses per day in my village and they take me off in the wrong direction)
I have a 2nd job running an e-bay business (self-employed) and this also requires transport to source stock.
I am of an age where future credit/finance is probably not going to be required (too old for a mortgage and all kids now married off)

Profile photo of Bill Arthur

I feel a little ‘stitched ip’ because some years ago, I had a one to one meeting with my ‘personal account manger’ and was advised at the time to use the O/D facility because it was simpler and quicker to set up and would not cost as much as a personal loan.
I simply got used to using it and never got into the position to reduce it.
I still cannot believe that Lloyds are hiking the cost by 350% per month

Profile photo of malcolm r

Bill, its only thoughts – I can’t give you advice. You seem to be doing all you can to help yourself. It would be a shame to give up and go bankrupt. PCP seems an expensive option perhaps, and plenty of reliable small cars are around. But I guess opting out of a PCP and then putting the money together for a purchase will be tricky. Is your employer in any position to help?

Sorry, this is all getting too personal. Lloyds should be explaining why they can suddenly impose huge extra charges on existing borrowers whose financial affairs have been planned around a particular arrangement.
Jane – will Which? ask Lloyds how they propose to help people like Bill and Rod?

Profile photo of malcolm r

Both my banks, and Lloyds, and presumably others, are now charging a daily fee for using your overdraft. Mine is very much for emergency use, not a form of permanent borrowing; this is, I believe, what an arranged overdraft should be used for, where extra money (that you can afford to pay back quite quickly) is needed for a relatively short time. A personal loan is more appropriate for longer term borrowing.

However, these daily fees lead to silly outcomes as we see from the above posts. Suppose my limit is £1000, and I use £800; cost 365 x £0.50 = £182.50. So I don’t exceed my limit and pay an effective interest rate of around 22.8% APR. If I use £100, I still pay an extra £182.50 in fees, so the APR leaps to 182.5%. (still much better than a pay day loan. But extortionate none the less).

I believe we should be campaigning for the charge on arranged overdrafts to be either an interest rate irrespective of the amount used (up to your limit) – say 18% like many credit cards – or a fixed daily amount if that is less.

Profile photo of wavechange

Why should the interest charge on arranged overdrafts be 18%? I suggest 5%, unless it can be shown that this is inadequate to cover costs. The poorest people are hardest hit.

Profile photo of malcolm r

wavechange, I was not suggesting it should be, simply giving a figure many already pay by using their credit card. However, if an overdraft is used as I believe it should be, for a very short term need, then £1000 for a month should cost around £15 even if the interest rate were 18%. I’m happy to debate what the % should be.

It was the principle I was concerned about rather than deciding a figure. 🙂

Will you support Which? being asked to question daily fees and replace them with a % interest rate?

Profile photo of wavechange

Fair enough, Malcolm, but that’s another punitive charge in my opinion. At least a credit card offers a generous free credit period and customer protection (Section 75) for purchases over £100. I would be interested to know what charge the banks would on average have to levy to break even on overdrafts and suggest that they should not be allowed to charge very much more.

henry bassadone says:
26 August 2017

Why are we talking about anouthorised overdraft all the time what about authorised ones , not fair that we have a limit overdraft accepted but the charges are too high. 100%

mikey says:
30 August 2017

in the same boat as others with £3000 overdraft and salary dropped from take home of £2000 a month to £1000 per month since had to take early retirement due to ill heath,now unable to reduce overdraft and charges will rise from £50 per month to £126 per month,so left with just £120 money for month after all regular fixed expenses, this is extortion??????? a very fair way to help long standing customers????? just to help a few who should not have used unauthorised lending anyway,at least it was capped at £90 per month,I would love to go back to that it was a bargain compared to this situation..

bishbut says:
31 August 2017

Do not borrow any money at all unless you are completely certain you can repay under any circumstances because you can never be sure what might happen in the future as you have just discovered Try becoming bankrupt ?


my charges will go from 43 a month to 110 I asked for help but was offered nothing at all just told I might get a loan elsewhere and I have banked with Lloyd’s for over 40 years. Pure robbery

John Broadbent says:
29 September 2017

I have had what was originally called a “Budget Account ” with Lloyds since 1965 and pay a set amount monthly into my account from my current account. This account enabled me to keep my bills separate and has worked well for the 53 years it has been running. In my current account is a substantial credit but I receive no interest on this as I would not transfer any Direct Debits to it as I wished to keep the two separate.
The new interest rate makes my Budget Account too costly to run. I have therefore just transferred all my business including my Platinum Credit Card to another Bank who was happy to maintain the existing rates as I had with Lloyds.
Lloyds were not bothered in the slightest to have me change accounts which they had held for a total of 56 years and in fact their letter encourages customers customers who are badly affected by the new rates to go elsewhere!
What a Bank!