An influential MP has branded Lloyds’ decision to raise its overdraft charges ahead of a clampdown later this year as ’unacceptable’.
Labour MP Rachel Reeves, chair of the Business, Energy and Industrial Strategy Select Committee, said: “It is unacceptable for financial institutions to try to game the system at the expense of customers, particularly those struggling with their finances.”
Lloyds has defended the move, saying the increase was announced prior to the announcement by the Financial Conduct Authority (FCA) that it wants to see overdrafts scrapped and replaced by a single interest rate.
Ms Reeves retaliated: “While these fees might be legal, they are not within the spirit of the FCA’s recommendations.
“We need further action from banks and the regulators on the exorbitant fees charged on overdrafts.
Lloyds should rethink these fees as a matter of urgency. We need an end to the excessive fees that continue to harm borrowers particularly those with persistent money problems.”
The FCA is in the middle of a major investigation into high cost credit and recently announced proposals to ban ‘rip-off fees’ for unarranged overdrafts in what it called ‘the biggest intervention in the overdraft market for a generation’.
A spokesman said: “We are proposing a series of radical changes to simplify the way banks charge for overdrafts and tackle high charging for unarranged overdrafts.
These changes would make overdrafts simpler, fairer, and easier to manage.”
The new Lloyds fees equate to an annual interest rate of 61% and will affect a quarter of all current account holders in the Lloyds Banking Group (LBG) which also includes Halifax and Bank Of Scotland.
Finance journalist Simon Read said: “Rather than paying 1p every day for every £7 of overdraft used, the cost for the first £1,250 borrowed will increase to 1p a day per £6.
“That works out at an annual interest charge of 61% – much higher than widely-criticised guarantor loans or expensive credit cards aimed at people with poor credit records.”
The FCA proposals are for radical change of the system ‘not tinkering around the edges’.
They want banks to charge a single interest rate for all types of overdraft and a ban on any fixed fees linked to an overdraft.
The single rate will give consumers an easy way of comparing banks for the best deal.
Lloyds maintains there is nothing wrong with its new fees and claims its action is in the spirit of the FCA’s views ‘in terms of removing costs for unplanned and complexity of charging’.
A spokesman said: “We welcome 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.”
Independent financial expert Andrew Hagger commented: “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.
“Being charged 60 per cent 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.“