Under mounting pressure from the FCA, the Competition and Markets Authority, and consumer groups, Lloyds Banking Group (Lloyds, Halifax and Bank of Scotland), which supplies retail (high street) banking for around 30 million people in the UK, has unveiled plans to scrap unplanned overdraft fees.
As of November, LBG customers who exceed their authorised overdraft limit will face no additional charges whatsoever.
Overdraft fees have been under increased scrutiny in recent years as a result of moves by banks to simplify them with the introduction of daily fees. Daily charges (eg. £3 per day), rather than overdraft interest, have seen many customers with lower levels of borrowing paying disproportionately high fees, while those using overdrafts to accrue larger debts have benefited.
With some charges reflecting effective interest rates akin to payday loans, overdraft fees have formed part of the FCA's inquiry into high-cost credit, and LBG's move appears to be a preemptive response to the proposed measures expected.
The scrapping of fees, together with the introduction of a maximum monthly charge in August, could lead to concerns that customers will spiral in increasing debt, as wages stagnate and living standards are squeezed. However, there's also a sting in the tail of the changes that Lloyds expect will result in consumers reducing their levels of borrowing. As of November, where customers do exceed their overdraft limit, payments from their account will be frozen.
This stick, combined with the collective carrots of no unplanned fees and a monthly cap on charges, should go some way to helping LBG reduce its exposure from a sudden downturn in the economy, as the possible effects of Brexit bite. Making the bank more resilient, while help customers reduce their debts - a genuine win-win.