Complex new overdraft fees introduced by Lloyds Banking Group — the UK’s largest retail bank — “fly in the face” of regulators’ efforts to make the cost of borrowing more transparent, according to the chair of the Commons Treasury select committee.
Nicky Morgan said on Friday it was “puzzling” that Lloyds was increasing fees for the majority of customers while publicly claiming to welcome new rules by the Financial Conduct Authority that are meant to make the charges fairer.
“Lloyds’ new overdraft fees appear to fly in the face of the FCA’s attempts to make overdrafts clearer and more transparent,” she added.
The FCA is in the process of overhauling rules affecting overdrafts in an effort to make them fairer and easier to understand, and the changes are expected to take effect as soon as December.
Despite this, Lloyds — which also operates the Halifax and Bank of Scotland brands — last month moved customers to a new overdraft system that increases fees for anyone borrowing less than about £4,100.
Lloyds customers borrowing less than £1,250 will pay an annual interest rate of around 61 per cent.
That is more than three times the rates charged by rivals such as First Direct and Nationwide, and makes a Lloyds overdraft more expensive than high-cost products such as guarantor loans or credit cards designed for people with impaired credit histories.
Lloyds also uses a tiered structure of overdraft fees that critics say makes it harder for customers to understand how much they will pay, and which could be banned under the FCA’s new rules.
The Financial Times first reported concerns about Lloyds’ new overdraft system last month.
In a letter to Ms Morgan published by her committee on Friday, Lloyds chief executive António Horta-Osório defended the bank’s new overdraft system and said it was fairer than most of its rivals.
“We recognise that this change will have an impact on our customers, but on average we believe that it will be small,” he wrote.
“We continue to engage with the FCA on this issue and believe that our revised proposition still meets the FCA’s objective that overdrafts be simpler, fairer and easier to manage.”
In statement on Friday, Lloyds said it “will reflect carefully on the points [Ms Morgan] has made . . . Overdrafts are an important issue and we will continue to listen to the views of the FCA and of stakeholders on the need to bring more clarity and transparency”.
Affinity, a trade union that represents Lloyds staff but is not recognised by the bank, said the company “seems deaf to the needs of its customers”, and the charges have provoked anger across the political spectrum.
Kevin Hollinrake, co-chair of an all-party parliamentary group on banking, urged Mr Horta-Osório to reverse its overdraft fee shake-up earlier this month in a letter seen by the Financial Times.
Rachel Reeves, chair of the Commons business select committee, who has campaigned for tougher rules against high cost credit and was one of the first MPs to complain about Lloyds’ new overdraft system, described Mr Horta-Osório’s response as “extremely disappointing”.
“Rather than trying to make a quick buck off overdraft users before tougher rules come into effect, Lloyds should do the right thing and drop these changes,” she said. “Their customers deserve better.”
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