Good news! Lloyds Banking Group has announced an overhaul of its unarranged overdraft fees.
The new policy, due to be introduced in November by Lloyds Bank, Bank of Scotland and Halifax, signifies concrete progress in our campaign against excessive unarranged overdraft fees.
This news should effectively put an end to these fees, but whether the new policy will prove less costly for everyone is yet to be seen.
In place of the traditional fees, all customers will pay a simple daily rate for using an overdraft with charges assessed on how much customers borrow and for how long.
Due to the significant detriment unarranged overdraft fees can bring to consumers, we have been campaigning hard for banking reform in this area for some time now. With Lloyds Banking Group taking the first step to improve its overdraft systems, we’re hopeful other high street banks will follow suit.
Despite this win, we’re calling on Lloyds to continue supporting its customers to help them avoid high charges and reduce their level of debt.
Coinciding with this welcome news from Lloyds, we are sending the Financial Conduct Authority (FCA) a dossier of evidence reflecting the harm caused by unarranged overdraft fees. Adrian told us:
'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.'
By documenting your experiences, we’re ensuring that the impact on individuals and their families does not go unnoticed. The FCA is currently reviewing high cost short term credit and we want them to use this review to ensure other banks follow Lloyds’s lead.
New Which? research finds that charges applied to unarranged overdrafts can cost more than those applied to payday loans.
When we compared the cost of borrowing £100 over 28 days we found some high street banks were charging as much as £90, fees which can be up to four times higher than the maximum allowed charge of £22.40 on a payday loan.
Back in January 2015, the Financial Conduct Authority introduced a cap on high cost short-term credit to limit excessive fees charged by payday loan companies. However, our research has revealed that overdraft charges can be much more costly.
Our Director of Policy and Campaigns, Alex Neill, said:
‘People with a shortfall in their finances can face much higher charges from some of the big high street banks than they would from payday loan companies.
‘The regulator has shown it’s prepared to take tough action to stamp out unscrupulous practices in the payday loans market, and must now tackle punitive unarranged overdraft charges that cause significant harm to some of the most vulnerable customers.’
Following its review of retail banking in the UK, the Competition and Markets Authority (CMA) has published its provisional remedies to tackle overdraft charges. The remedies include a requirement for banks to have a monthly maximum charge for unarranged overdraft usage.
However, we’re not convinced that this will make much of a difference. Banks typically already put caps on charges and the CMA’s remedies do not address the overall level of fees.
Alongside our near 50,000 supporters who’ve backed our campaign for Better Banks, we’re calling for unarranged overdraft charges to be set at the same level as arranged overdraft charges.
We’re also calling on the FCA to review overdraft charges in the context of other forms of credit and crackdown on punitive fees.
Join our call for a crackdown on unfair overdraft charges by signing our petition today.
Two of the big banks have come out in support of our Better Banks campaign, which calls on the industry to deliver better everyday banking for their customers.