Lloyds overdraft changes have been slammed as ‘gaming the system’ by making the process more expensive and complex.

The changes would see a significant increase in fees for the majority of customers.

This goes against the recent recommendations from the Financial Conduct Agency (FCA). Today the bank will start migrating customers across its brands to a new tariff. Furthermore, the new tariff will significantly increase fees for any customer borrowing less than £4,100 ($5,300).

The changes come as the FCA discusses a new overdraft fees regime. RBI first reported the FCA proposed changes in December 2018 when it banned higher fees for unarranged overdrafts.

In 2017, banks across the UK charged overdraft fees of over £2.4bn with around £720m coming from unarranged overdrafts. The FCA is now also requiring banks to stop charging more for unarranged overdrafts and for them to use a far simpler pricing structure and clear advertisement for consumers.

Labour MP Rachel Reeves, chair of the Business, Energy and Industrial Strategy select committee has been fighting for tougher rules against the high cost credit. She stated:

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“It appears these changes at Lloyds will increase the charges for the vast majority of customers with overdrafts.

“While these fees might be legal, they are not with in the spirit of the FCA’s recommendations. It is unacceptable for financial institutions to try to game the system at the expense of customers, particularly those struggling with their finances.

“We need further action from banks and the regulators on the exorbitant fees charged on overdrafts. Lloyds should rethink these fees as a matter of urgency. We need an end to the excessive fees that continue to harm borrowers particularly those with persistent money problems.”

In 2017, Lloyds scrapped its charging structure across Lloyds, Halifax and Bank of Scotland. It also ditched unarranged overdraft fees and introduced a single fee: 1p per day for every £7 of overdrawn balance.

FCA proposals on overdrafts 

Thos living in more deprived areas are most likely to feel the financial squeeze from the Lloyds overdraft changes. Subsequently, in December the FCA published radical changes to the overdraft system.

Some included:

  • Ensuring the price for each overdraft will be a simple, single interest rate – no fixed daily or monthly charges and,
  • Banning fixed fees for borrowing through an overdraft.

In response, Lloyds said: “We welcome the FCA’s move to simplify the structure of overdrafts and the cost of unarranged overdrafts.

“We were the first major bank to remove charges for unplanned overdrafts, remove charges for returned item fees and our overdraft charges are proportionate to what is actually borrowed, making it easier for customers to understand the total costs involved.”