Lloyds Banking Group has faced criticism from MPs and financial experts after introducing new overdraft charges that equate to an annual interest rate of up to 61%. The changes, which took effect from 14 January for Bank of Scotland customers and will roll out to Lloyds and Halifax accounts later this month, have been described as 'unacceptable' by Labour MP Rachel Reeves, chair of the Business, Energy and Industrial Strategy select committee.
The new fee structure replaces the previous daily charge of 1p for every £7 borrowed. For the first £1,250 of an overdraft, customers will now pay 1p per £6 per day, resulting in an APR of 61% — higher than many guarantor loans or credit cards aimed at those with poor credit. Borrowing between £1,250 and £2,500 remains at 1p per £7, while amounts above £2,500 are charged at 1p per £8. Anyone borrowing less than £4,100 will pay more under the new tariff.
The Financial Conduct Authority (FCA) has proposed a crackdown on overdraft fees, advocating for a single interest rate and a ban on fixed fees. Lloyds maintains that its changes were announced before the FCA's latest recommendations and are in the 'spirit' of the regulator's views on removing complexity. However, analyst Andrew Hagger of Moneycomms said the increase 'doesn't fit in any way shape or form with what the regulator wants to see'.
Around a quarter of current account holders will be affected. The FCA estimates that 1.5% of customers pay the majority of unarranged overdraft charges, averaging £450 per year, with those in deprived areas paying twice as much. Ms Reeves urged Lloyds to 'rethink these fees as a matter of urgency', adding that excessive fees continue to harm borrowers, particularly those with persistent money problems.
