The Lloyds Banking Group (LBG) has joined the 40% overdraft club, but some customers could be charged as much as 49.9% when their account goes into the red.
Most customers of LBG – Lloyds, Halifax and Bank Of Scotland – will end up paying 39.9% on their borrowing, but the group has also created some ‘personalised’ rates.
Club Lloyds members will pay just 29.9% whereas the majority of others will pay the standard 39.9%, but some customers with a poor credit history could pay as much as 49.9%.
An LBG spokesman said risk-based pricing is standard practice for loans and credit cards so a customer’s past financial history will be examined before deciding which rate they will pay.
The group dropped higher charges for unarranged overdrafts and returned items in 2017 so it will not cost you any more if you slip into the red without having spoken to your bank manager about it first.
Apply from April
The spokesman added: “We are writing to our customers to explain the new overdraft rates that will apply from April 2020. As a result of these changes, 90% of customers with an overdraft will pay less than they do today.
The majority of customers will pay the APR of 39.9% on most of our current accounts, 29.9% on our Club Lloyds account.
“Customers will be offered a personalised overdraft rate, up to 49.9%, depending on their circumstances.
We have not charged unarranged overdraft fees or returned-item fees since 2017, and this will not change – we know this simple approach is valued by our customers.”
LBG and the other high street banks have altered their overdraft policies in response to a call from the Financial Conduct Authority (FCA) to standardise the rates and cut out all the additional fees some customers were paying.
A spokesman for the regulator said: “Customers at some large banks were charged effective arranged overdraft rates in excess of 80% per year once fees and charges are factored in.”
Overdrafts in numbers
Around 19 million Brits use an arranged overdraft with another 14 million unarranged overdrafts being accessed as well, but 7.3 million of those were customers who had exceeded the limit of their arranged deal by going even further into the red.
The banking industry made £2.4 billion from overdrafts in 2017 (the latest year with figures available) and around 30% of the total came from unarranged fees and charges.
Some will pay more
The FCA said 7 in 10 customers will be in the same position or better off with the changes, but that leaves almost a third who will be worse off
FCA executive director of strategy and competition, Christopher Woolard, said: “Our changes expose the true cost of an overdraft.
“We have eliminated high prices for unarranged overdrafts. This will result in a fairer distribution of charges, helping vulnerable consumers, who were disproportionately hit by high unarranged overdraft charges, and many people who use their overdraft from time-to-time.
“Seven out of ten overdraft users will be better off or see no change. At two banks that figure is nine out of ten.
“Consumers can now see how expensive overdrafts really are. Those who are worse off should consider shopping around to find a cheaper deal.
Credit and other forms of borrowing can be significantly cheaper for long-term users.”