Lloyds Banking Group is simplifying overdrafts for its personal current account customers. The new approach will be simple, clear and will give customers more control of their overdraft borrowing.
Overdrafts can be complex and confusing for customers and Lloyds Banking Group has listened to customer feedback in the changes it is introducing 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 include:
- From November, there will be a simple, single rate of 1p per day for every £7 of planned overdraft usage, clearly linking the amount charged to the amount and period of borrowing
- All fees and charges associated with unplanned overdrafts will be removed
- No more additional overdraft fees for missed payments, so customers will no longer be charged a returned item fee for having payments stopped due to lack of funds
- A daily fee will be charged at the end of each day of planned overdraft usage, avoiding cumulative fees being charged weeks later, helping customers to budget
- Customers who have given their mobile number to the Bank will automatically receive free text alerts, including low balance alerts, putting them in control of their budget
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.”
Lloyds Bank, Halifax and Bank of Scotland will write to all customers at least two months before the new overdraft approach comes into effect to clearly set out the changes. The letter will provide support material to help customers understand how this will impact them based on their circumstances and additional guidance to help customers through the transition.
Mike O’Connor, Chief Executive of MALG member 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.”
MALG member Debt Camel questions the move in this blog asking whether the new charging is simple but not as cheap as it sounds, and whether the motivation for it is to address issues that the Financial Conduct Authority is looking at before new regulation comes into force.