12 July 2017

  • All customers will pay a simple daily rate with no additional fees and charges

  • Charges based on how much customers borrow and for how long

  • All fees and charges associated with unplanned overdrafts will be removed

  • Customers will be sent free text alerts to help them stay in control of their finances

Lloyds Banking Group is today announcing a simplification of overdrafts for its personal current account customers. The new approach will be simple, clear and will give customers more control of their overdraft borrowing.

We understand that, across the banking sector, overdrafts can be complex and confusing for customers. Lloyds Banking Group has listened to customer feedback and is announcing changes to make overdrafts simple and clear 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

What this means in practice

With the new simple, single rate, a Lloyds Bank customer with the Classic current account who goes overdrawn by £100 within their planned limit for 10 days, will pay £1.40. Previously, they would have been charged £6.38.

A Halifax customer with a Reward current account, who goes overdrawn by £100 up to their planned limit of £100 for ten days, and is also unplanned by £50 for two of those days, will pay £1.40. Previously they would have been charged £18.00

 Across the industry banks also allow some customers to temporarily access an unplanned overdraft, for example when a budgeting error means there would be insufficient funds to clear a direct debit. At the moment, a customer who goes beyond their limit would typically face charges for being in an unplanned position. In future they will face no such charges. Additionally, in situations where an unplanned overdraft isn’t authorised and a payment is stopped, there will be no returned item fees.

 The average debit balance for a Lloyds Banking Group customer using their overdraft is typically around £450 a month.

 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.

 Support for customers

 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. 

There are a number of ways in which the Bank already supports customers to manage their finances and provides them with appropriate borrowing options based on their individual needs. This is one of the reasons why customers are already making less use of overdrafts.

 To build on this existing support, the Bank will write individually to the small proportion of customers who have higher overdrafts, and will pay higher fees. They will be provided with additional support during the transition to the new approach and, where necessary, there will be a tailored transition plan for customers to ensure they are prepared. This may include a review of the options available, such as a personal loan, which may better meet their underlying borrowing needs.

The new approach to overdrafts comes into effect from November this year. 

 Mike O’Connor, Chief Executive, 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.”