Lloyds’ charges raise a red alert

LLOYDS TSB is charging account-holders who slip into the red a staggering 11 times more than lenders already under investigation for excessive charging, a Sunday Herald investigation has discovered.

The taxpayer-funded bank is taking a huge rake-off from consumers who go overdrawn by £100 or less.

Yvonne Gallacher, chief executive of the debt advice group Money Advice Scotland, has demanded that regulators should now investigate the Lloyds fees.
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"Everyone is pointing the finger at payday loans and the subprime end of the market but I think they need to look into mainstream stuff," she said.

"Banks should have to give absolute examples of the cost of borrowing because some people trust banks without understanding what the impact of fees is going to be.

"At a time when a lot of people are going to become unemployed this is going to become a big issue as a lot of those people will have overdrafts."

Lloyds Group, which is 40% owned by the UK government thanks to a multi-billion-pound bailout by taxpayers, has 22 million current-account customers. The bank refused to disclose how many customers went into unplanned overdraft each month, by how much or for how long, claiming this information was "commercially sensitive".

A spokesman for the group, which is under threat of break-up from the European Commission and from a future Conservative government, said: "The majority of Lloyds TSB's customers who go into an unplanned overdraft position do so by accident, by small amounts and only for a couple of days. The changes to the charging structure reflect this."

However, even in the case of a small unplanned overdraft for a short period, charges are considerably higher than the sum borrowed. A Lloyds customer who went overdrawn by £26 for two days would incur a monthly charge of £15 for the unplanned overdraft, as well as two daily fees of £15. This amounts to a total of £45 in charges for being £26 overdrawn for two days.

Lloyds imposes a sliding scale of daily fees: £6 a day for those overdrawn up to £25; £15 a day for those overdrawn between £25 and £100; and £20 a day for those overdrawn by more than £100.

Someone going into unplanned overdraft by £85 for 10 days would therefore be landed with a total fee of £165. But if the same person went to a payday loan company and borrowed £85 for a month it would cost them on average just £15, meaning Lloyds is effectively charging 11 times more.

Customers with the Bank of Scotland and Halifax, now part of the Lloyds TSB group, also face daily fees for unplanned overdrafts, introduced after the government-backed takeover last year. Customers of these brands with Reward accounts - the main current account on offer since December 2008 - face a flat daily unplanned-overdraft fee of £5 a day. The total number of days a customer can incur this fee in any one month is uncapped, so they could rack up £155 of these charges in a 31-day month.

Abbey, HSBC, Barclays and the Royal Bank of Scotland do not apply a daily overdraft fee. Indeed, HSBC tells customers with its "fair fees policy": "You won't have to pay more in fees than the maximum you are overdrawn by in your charging month, so a £15 overdraft is not going to cost you £50."

Last week the Office of Fair Trading (OFT) announced it would be investigating so-called payday loan companies because of concerns over the high cost charged for providing credit.

Asked by the Sunday Herald why, if it was investigating payday loan companies for that reason, it was not looking into Lloyds' higher charges, an OFT spokeswoman said: "The OFT is currently investigating the fairness of personal current account unarranged overdraft charging terms under the UTCCRs (Unfair Terms in Consumer Contracts Regulations 1999).

"Lloyds TSB is one of the banks being investigated, and we will be looking at all of its relevant terms."

The Westminster government last week called on regulators and banks to bring about a swift resolution to this ongoing court action over bank charges when it published its white paper on reforming financial markets.

However, as things stand a waiver granted to banks in July 2007 by the Financial Services Authority effectively absolves them from having to deal with most customer complaints about bank charges, until the outcome of the test case between them and the OFT is known.

This means Lloyds could continue to charge its customers up to £215 in penalties each month for years if the banks decide to appeal the court action all the way to Europe - while customers who incur the charges can only register their intention to reclaim them, pending the outcome of the case.

Lloyds made the changes to its terms and conditions that brought in the daily charges in September 2007, two months after the FSA granted the waiver. When we asked if the regulators had approved these changes, a Lloyds spokeswoman said: "We don't comment on confidential conversations with the regulators but we can confirm that we meet all our obligations, including those under the FSA waiver."

The FSA, which is threatened with abolition should the Conservatives win the next general election, confirmed it had been consulted about the changes.

But the OFT told the Sunday Herald it had not approved this change to Lloyds' terms and conditions. Its spokeswoman said: "The OFT has indicated that none of the banks' terms (including Lloyds') has received a clean bill of health'." However, she declined to explain why, if the OFT had not approved the changes, it had allowed Lloyds to introduce them in 2007, especially as it was already investigating the bank because it believed its existing charges were unfair.

Yvonne Gallacher is concerned that Lloyds' daily fees are not being properly investigated. She said: "We are concerned that this is not being looked at because of the court case. Against a backdrop of mild recession, I don't think any delay is the right thing to do."

Source: The Sunday Herald.