Lloyds to scrap unplanned overdraft charges for 20 million customers

Lloyds Banking Group will no longer be charging customers if they exceed their overdraft limit, after the lender unveiled plans to scrap fees for unplanned for overdrafts.

The banking giant - whose businesses also include Bank of Scotland and Halifax - said from November this year its 20 million customers will face no fee at all even if they go beyond their overdraft threshold.

Up until now, Lloyds customers exceeding their overdraft limit faced a daily charge of up to £10 and a monthly charge of £6, with payments at an annual rate of 19.89% and a charge of up to £30 a day for unpaid items.

These will all be scrapped now, while fees for missed payments from basic bank accounts are also going to be abolished.

However, the bank added it may continue to block transactions and payments from the account until the overdraft has paid off.

As a result of the changes, the bank said it expects to make less money, although it pointed out the number of customers using unplanned overdrafts has declined steadily in recent years.

Lloyds has also unveiled plans to overhaul the fees for planned overdrafts, which currently sees customers charged £6 on top of a 19.89% annual interest.

While the fee will be scrapped, the interest rate will be raised to 68.4%, which amounts to 1p a day for each £7 borrowed, according to the bank. Lloyds added that it expects nine out of 10 customers to be better off or to see no changes after the plans are implemented.

Consumer groups hailed the decision as a step in the right direction.

"Lloyds' decision to do away with these fees is a positive step, and its proposed simpler pricing will benefit many of its customers," said Peter Vicary-Smith, Which? chief executive.

"However, not everyone will be better off, so it's critical that Lloyds supports customers to help them avoid high charges and to reduce their level of debt."

Lloyds' move comes after the Competition and Markets Authority (CMA) and consumer groups both criticised banks for charging exorbitant fees to customers taking out unplanned overdrafts.

Following its inquiry into the industry, the competition watchdog last year called for banks to cap their unarranged overdraft fees as part of an industry overhaul that could save UK customers a combined £1bn over five years.

The CMA urged banks to implement the changes by September this year and RBS and Natwest will introduce a £90 maximum fee for overdrafts on 24 July, while Lloyds will introduce a maximum fee of £95 which will then be scrapped in November.

HSBC is set to remove interest charges on most unplanned overdrafts but will still charge a fee of £5 a day and up to £80, while Barclays abolished unplanned lending back in 2014.

The Financial Conduct Authority is also expected to propose changes to the overdraft system as part of its probe into high-cost credit.