Lloyds, Halifax and Bank of Scotland to charge up to 49.9% interest on overdrafts from April - MSE 22 January 2020 at 8:31AM edited 30 November -1 at 12:00AM in Budgeting & Bank Accounts 30 replies 1.6K views

MSE_Callum

Lloyds, Halifax and Bank of Scotland will scrap daily fees for arranged overdrafts from April and instead charge an interest rate based on customers' credit history, with most set to pay 39.9% but some charged an eye-watering 49.9%. That's the highest rate we've seen from banks overhauling their overdraft fees - though most customers will actually pay less for their overdraft as a result of the changes...

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'Lloyds, Halifax and Bank of Scotland to charge up to 49.9% interest on overdrafts from April'

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JuicyJesus

MSE: "Banks shouldn't be allowed to charge overdraft fees! In fact, banks shouldn't be allowed to charge anything! Screw banks!"

FCA: "OK, we agree, we have banned them."

Banks: "Well, we still need to make money, and overdrafts are one of the few things we charge current account holders for, and the whole settlement was that those who go overdrawn subsidise everyone else who gets banking for free, so we'll have to increase the rate of interest because we have nowhere else to go, unless everyone starts wanting banker's drafts for some reason."

MSE:

Consumerist

Glad to see Lloyds Group have finally broken cover on overdraft charges.

With their current overdraft charges equivalent to 84% pa.on the first £1,250 this announcement must be breaking their heart.

This lot are soooo greedy, they are likely to claw back the rest by reducing benefits on their accounts.

Kate73

Hello. I have just received the santander formal letter about overdraft fee changes..... I have an arranged overdraft so will be charged 39.9%. Whereas unarranged is 0%.
Shocked.
Should I change /get rid of my arranged overdraft?
Don't want to change account as a hassle.
But if getting rid of overdraft may consider, nervously, changing banks... But would hate to really.
Thanks
Kate

eskbanker

Kate73 wrote: »

Hello. I have just received the santander formal letter about overdraft fee changes..... I have an arranged overdraft so will be charged 39.9%. Whereas unarranged is 0%.
Shocked.
Should I change /get rid of my arranged overdraft?

While this thread is about Lloyds group rather than Santander (i.e. you should probably have started a new thread), you're not the first to conclude from these industry changes that an arranged overdraft is now worse than an unarranged one, but the obvious difference is that your bank will allow you access to funds that'll take you up to your arranged limit, but they're under no obligation to honour transactions that would take you overdrawn if you don't have an arranged facility.

Nationwide have explicitly said that (where possible) they'll decline transactions to prevent customers from going overdrawn without an arrangement, but it remains to be seen whether others will adopt a similar approach.

Also worth noting that whatever Santander's position on overdrafts is, it can't be as simple as 39.9% interest for arranged and 0% interest for unarranged, because the whole point of the exercise is to harmonise interest rates so they're the same for both, even though other Ts & Cs may allow variation of total cost, such as capping.

Consumerist

As I understand it, Santander will not offer unarranged overdrafts at all. They simply will not make payments if there are insufficient funds. This may have other consequences for the bills which will remain unpaid.

Edit
There is a useful <table> issued by Santander so you can make comparisons for arranged overdraft fees before and after 6 April.

abz88

Consumerist wrote: »

Glad to see Lloyds Group have finally broken cover on overdraft charges.

With their current overdraft charges equivalent to 84% pa.on the first £1,250 this announcement must be breaking their heart.

This lot are soooo greedy, they are likely to claw back the rest by reducing benefits on their accounts.

Don't really see it this way. They are allowing folk access to money (their overdraft) they don't have and potentially never will have at a rate that should put them off going into their overdraft.

eskbanker

abz88 wrote: »

Consumerist wrote: »

Glad to see Lloyds Group have finally broken cover on overdraft charges.

With their current overdraft charges equivalent to 84% pa.on the first £1,250 this announcement must be breaking their heart.

This lot are soooo greedy, they are likely to claw back the rest by reducing benefits on their accounts.

Don't really see it this way. They are allowing folk access to money (their overdraft) they don't have and potentially never will have at a rate that should put them off going into their overdraft.

I don't think these posts are actually contradictory - yes, overdrafts are ultimately loans that need to be paid for but LBG's pricing policy in recent years has been more aggressive than most and they've chosen to retain that position in the new model.

It could certainly be argued that their pricing is predatory (albeit less so than the current structure) and I'm not convinced that it's tenable to represent it as if it was deliberately a deterrent....

abz88

eskbanker wrote: »

I don't think these posts are actually contradictory - yes, overdrafts are ultimately loans that need to be paid for but LBG's pricing policy in recent years has been more aggressive than most and they've chosen to retain that position in the new model.

It could certainly be argued that their pricing is predatory (albeit less so than the current structure) and I'm not convinced that it's tenable to represent it as if it was deliberately a deterrent....

Yes, they have been more aggressive as you say, but when it comes to current accounts (especially nowadays) it is easy to switch to another bank with lower fees charged on overdrafts. I also don't believe Lloyds allow for arranged overdrafts on their basic account? So I'm not sure I would say "predatory" as to me this implies preying on the weakest.

eskbanker

abz88 wrote: »

Yes, they have been more aggressive as you say, but when it comes to current accounts (especially nowadays) it is easy to switch to another bank with lower fees charged on overdrafts.

The process of switching is easy for those who have access to a new account, but those living in overdrafts are naturally less likely to be accepted for new accounts, or may not be offered new overdrafts with them.

abz88 wrote: »

I also don't believe Lloyds allow for arranged overdrafts on their basic account?

No basic accounts do, it's what makes them basic.

abz88 wrote: »

So I'm not sure I would say "predatory" as to me this implies preying on the weakest.

But those who are heavily indebted to LBG (or any other bank) are the least able to do anything about it, so I was challenging your contention that high charges can reasonably be seen as a deterrent, when in many cases they'll simply be exacerbating an existing problem.

Consumerist

The banks have known for more than a year what the regulator had in mind for overdraft charges in general. In the full knowledge of the regulator's intention, Lloyds increased their overdraft charges for smaller overdrafts.

Those who could flee the scene had already done so - leaving Lloyds with their own group of overdraft prisoners which they proceeded to royally screw for the time they had before the new regs would apply.

Yes, on that basis I would say that words like "predatory" and "aggressive" are pretty sober descriptions on the Lloyds Group.