Benefit for customers
Bank of Scotland scraps unplanned overdraft fees
Bank of Scotland customers will benefit from parent group Lloyds Bank’s decision to scrap fees for unplanned overdrafts.
All existing charges for overdrafts will be abandoned in November and replaced with a single fee of 1p every day for every £7 of overdraft used.
Customers may still face a block on payments from their account until the overdraft is paid off.
Barclays abolished unauthorised lending three years ago. Its customers cannot exceed their overdraft limit unless they obtain permission for emergency lending.
Lloyds’ decision follows criticism of high charges by consumer groups and the Competition and Markets Authority (CMA).
The Financial Conduct Authority is also expected to cap overdraft fees when it publishes the results of its inquiry into the cost of credit.
Lloyds customers taking out unauthorised overdrafts faced interest payments at an annual rate of 19.89%, a daily charge of up to £10, the monthly charge of £6, and up to £30 a day for returned (unpaid) items. These will be abolished.
Those who occasionally dip into the red will also benefit. Currently someone who goes £100 overdrawn at Lloyds for 10 days a month will pay £6.38 a month in fees, but under the new system this will drop to £1.40.
Fees for missed payments from basic bank accounts will also disappear. Lloyds is also making it cheaper for many customers to borrow by simplifying fees.
The losers will be those customers who have large agreed overdrafts and use them a lot each month. Lloyds said someone who has a £1,000 overdraft limit and uses it for 10 days a month will now pay £14.20, compared with £10.88 previously.
Last year the Competition and Markets Authority completed a two-year investigation in which it said the big banks make around £1.2 billion a year from unarranged overdraft fees.
Lloyds said the changes will see it lose revenue, though it declined to say how much. The bank operates around a quarter of all current accounts in Britain.