Lloyds Banking Group is being criticized for making its overdraft fees more expensive and complicated for its customers.
According to The Financial Times, on Monday (January 14), the bank will implement a new tariff that will boost fees for borrowers of less than about £4,100. But critics say a new tiered charging system will make it harder for customers borrowing larger amounts to determine how much they’ll have to pay.
The changes come at a time when the U.K.’s Financial Conduct Authority is taking a closer look at overdraft fees, including proposals that would prohibit banks from charging more for unarranged overdrafts, as well as enforce less complex pricing. Lloyds — the largest overdraft provider in the country — has already eliminated the distinction between unarranged and arranged overdrafts.
“While these fees might be legal, they are not within the spirit of the FCA’s recommendations. It is unacceptable for financial institutions to try to game the system at the expense of customers, particularly those struggling with their finances,” said Rachel Reeves, a Labour MP.
Lloyds previously charged a flat daily rate of 1p per £7 of borrowing. But new rates will now be determined by a tiered system starting at 1p per £6, meaning that customers borrowing less than £1,250 will pay an annual interest rate of around 61 percent.
“I’m surprised that the planned increase is still going ahead as it doesn’t fit in any way shape or form with what the regulator wants to see for personal overdrafts,” said Andrew Hagger, personal finance expert and founder of consumer website MoneyComms. “Being charged 60 percent for an agreed overdraft is pretty steep in anyone’s books, particularly if you’re a customer with a spotless credit record. The sooner all overdrafts are displayed as a simple interest rate the better, it will stop people unknowingly paying over the odds.”
While critics call out the bank for its new fee system, Lloyds said that it welcomes “the FCA’s move to simplify the structure of overdrafts and the cost of unarranged overdrafts. We were the first major bank to remove charges for unplanned overdrafts, remove charges for returned item fees and our overdraft charges are proportionate to what is actually borrowed, making it easier for customers to understand the total costs involved.”