Lloyds will charge up to 49.9% for overdrafts from April
LLOYDS Banking Group customers are to be charged new ‘personalised’ overdraft rates of up to 49.9 per cent from April.
The majority of customers will receive new annual rates of 39.9 per cent, or, for Club Lloyds customers, 27.5 per cent, the banking giant, which includes Halifax, said.
A ‘risk pricing’ structure it plans to introduce across its brands means that some customers will be charged higher rates of as much as 49.9 per cent.
Lloyds is the latest in a slew of banks to announce a shake-up to its overdraft pricing structures, as the industry prepares to comply with new rules from the City regulator coming into force from April 6. Many banks are pegging their new rates just below 40 per cent.
The banking giant will look at customers' past financial behaviour when determining which rate to offer.
Lloyds said risk-based pricing is standard practice for loans and credit cards and means it can continue to offer overdrafts to a wider range of customers.
Giving an example of the difference in borrowing costs between lower and higher price points, the bank said customers borrowing £500 over a week will pay £3.22 at 39.9 per cent and £3.85 for 49.9 per cent - a difference of 63p.
It said 90 per cent of its customers with an overdraft will pay less under the new model.
Of the minority of customers who will pay more, the average monthly increase is £1.89, according to the bank.
As part of the changes, it will also reduce the fee free buffer customers receive on some accounts to £50 from April 6. Its Premier account will see the interest-fee free buffer halve from £500 to £250.
Lloyds scrapped unarranged overdraft fees and returned item fees back in 2017, and will continue not to charge for them.
It said that it will continue to apply charges daily rather than allowing them to mount up, so customers can avoid nasty surprises.
Lloyds said overdrafts are designed for short-term borrowing for a few days per month - and if customers are borrowing a bigger amount of money over a long period of time, other borrowing products may be more suitable.
It is writing to these customers to encourage them to contact the bank so that it can review their circumstances.
A Lloyds Banking Group spokesman said: ‘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 per cent of customers with an overdraft will pay less than they do today.
‘The majority of customers will pay the APR of 39.9 per cent on most of our current accounts, 27.5 per cent on our Club Lloyds account.
‘Customers will be offered a personalised overdraft rate, up to 49.9 per cent, 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.’
New Financial Conduct Authority (FCA) rules will prevent providers from charging higher prices for unarranged overdrafts than for arranged overdrafts.
Changes from April 6 will ban fixed fees for borrowing through an overdraft, calling an end to daily or monthly charges - with the aim of making overdraft charges clearer and easier to compare so that people can shop around.
Christopher Woolard, executive director of strategy and competition at the FCA, 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 10 overdraft users will be better off or see no change.’
Mr Woolard said overdrafts were not designed to be used for large amounts for long periods of time and consumers should consider other methods of credit if they find they need to borrow for longer.
He said: ‘In addition to this, we have made it clear that firms have to treat all customers who are affected by changes to their charging structures fairly.
‘In particular, firms must identify customers adversely impacted and take steps to support them if they're in difficulty.’
Santander has already announced it is slashing the interest paid to holders of its flagship 123 current account as well as imposing a new overdraft rate of 39.9 per cent.
From May 5, the bank will chop the in-credit interest rate from 1.5 per cent to 1 per cent on balances up to £20,000. Cashback paid on household bills will also be capped.
HSBC, First Direct and M&S Bank will all introduce rates of 39.9 per cent from March 14.
NatWest will charge up to 39.49 per cent for overdraft borrowing and its changes will take effect from March 27.
Barclays will introduce changes from March 22, with a new new overdraft rate of 35 per cent.
A TSB spokeman said: ‘From April 1, in line with industry regulation, we will be moving to a single rate for all overdrafts within our current account range and from this date, customers will be charged a fixed rate of interest (39.9 per cent EAR) for both arranged and unarranged overdrafts.
‘Following these changes, 70 per cent of TSB customers will pay the same, or less, for their overdraft than they currently do.
‘At the same time as we are introducing these changes, TSB is also removing all fees for arranged overdrafts as well as removing the daily £5 unarranged overdraft fee.
‘We are also reducing the maximum monthly charge cap a customer will pay on unarranged overdrafts from £80 to £30 per month.’
Nationwide Building Society has already imposed a single rate of 39.9 per cent across its adult current account range.