Lloyds is ripping its customers off

Lloyds TSB is reducing many current account fees from December, but one new charge has a very nasty sting in the tail.

The Office of Fair Trading (OFT) may have thrown the towel in on its battle against unauthorised overdraft charges on current accounts, but that doesn’t mean Britain’s big banks aren’t still under huge pressure to treat customers fairly.

With that in mind, it should have been encouraging news that Lloyds TSB is unveiling a new fee structure for all its current account customers from 2 December. If you’re a Lloyds’ customer, you’ll no doubt be pleased to hear the heavy charges Lloyds currently imposes if you accidentally slip into an unauthorised overdraft are either going to be reduced or removed altogether.

But, ludicrously, if you are a responsible borrower and use an authorised overdraft facility correctly that you have arranged in advance, you will be penalised much more heavily than in the past.

In other words, responsible customers are being ripped off so that less responsible customers can borrow more easily.

Let’s take a detailed look at all the changes.

New fees and features from December 2010

As you can see, fees for unauthorised overdrafts will be reduced significantly in December. Lloyds will introduce a free £10 overdraft buffer, which means the current £6 daily fee for going into the red by £10 or less will no longer apply. You’ll also see that the daily fees for going overdrawn by £10 or more, while still to be avoided, have been cut.

Meanwhile, the £15 monthly fee for unplanned overdrafts will also be removed. This charge will be replaced by a monthly usage fee of £5, which means you’ll pay two-thirds less for this penalty than you would do now.

So far, so good but what about the new charges for authorised overdrafts?

And now for the bad news

There’s no question that if you wander into unauthorised borrowing territory, you’ll trigger lower penalties from December. But sadly, the same can’t be said if you bank with Lloyds, know in advance you'll need to go into the red and go to the trouble of arranging an overdraft facility at a cost you can afford.

In this case, you’ll be hit with the same new monthly usage fee of £5 (so £60 a year) which also applies to unplanned/unauthorised borrowing. The fee will only apply once in any 30-day period, but this it is a major hike in the level of the penalty, since no fee is currently in place.

Lloyds claim that most of their current account holders remain in credit or rarely use an overdraft. But I think it’s grossly unfair to increase penalties for people who try to manage their money well by arranging an overdraft, while reducing penalties for those who go overdrawn unwittingly or carelessly.

And, to add insult to injury, when do go back into the black you won’t earn any interest on your balance either. But given that the current rate is 0.1% you won’t exactly be kissing goodbye to a huge return. (Note that if you hold a Vantage or Plus account the in credit interest rate will be cut to 1.5%.)

Debit interest

To make matters even worse, as well as charging a new £5 monthly usage fee for planned overdrafts, the normal rates of debit interest will still continue to apply as well. This change will make Lloyds planned overdrafts very expensive. In fact, for some accounts this rate could be as high as 19.3%. Just check out the table below:

Overdraft rates for Lloyds TSB current accounts

How can you fight back?

I definitely don't think Lloyds customers should put up with this. If you think you’ll probably need to use your planned overdraft every month, I suggest you take steps now before the new higher charges come in this December.  

You should seriously think about switching to an account with an interest-free overdraft facility. This will give you some breathing space in which to clear your borrowing once and for all, while avoiding all the nasty charges

A great choice for this would be the Santander Preferred Overdraft Rate Account or the Alliance & Leicester Preferred Overdraft Rate Account which offer a 0% facility for the next 12 months. What’s more, your existing overdraft will be matched up to £5,000 (depending on your circumstances).

All you have to do to qualify is pay in at least £1,000 a month. Then do your best to clear the debt before the 0% period is up and the standard 12.9% AER kicks in.

Compare current accounts at lovemoney.com

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