Lloyds introduces overdraft fees equivalent to a quintillion APR

Consumer groups hit out at Lloyds TSB yesterday, as the bank unveiled a restructure of its charges, which will see customers paying many trillions of per cent in interest if they bust their overdraft limit.

As of 2 November, the fee for customers who go over their pre-agreed overdraft limit will be reduced from £30 to £15. However, instead of the current arrangements – which see customers also paying interest equivalent to about 30 per cent a year on any unauthorised overdraft – Lloyds is to introduce hefty daily fees, equivalent to as much as a quintillion per cent (a 31-figure number).

Customers who go past their agreed limit by £100 or more will be charged £20 a day, in addition to the initial £15 fee, while even customers who go less than £25 into the red will be charged £6 a day.

Which?, the consumer group, dismissed the changes as a cynical gimmick, which would only leave many banking customers worse off. "They clearly think this will make them look good," Helen Ainsworth, a spokesperson for Which?, said. "But they're merely replacing one profit stream with another. Why not wait until we've had a judgment from the court?"

The Office of Fair Trading has set up a test case, due to take place next year, designed to establish the legality of banking charges in the UK. The banks have paid out hundreds of millions of pounds in compensation to customers. However, most courts are now delaying judgment on hearings until the result of the test case is known.

Doug Taylor, the personal finance campaigner of Which?, added: "Charges have to be proportional to the costs. It doesn't strike me that these are any more proportionate than the previous charges."

Lloyds is also introducing a period of grace, allowing customers who bust their overdraft limit to avoid all charges if they put themselves back in the black by 3.30pm the same day. Furthermore, they are launching a text message alert service, warning customers when they are close to their limit, although this will cost £30 a year.

A spokesperson for the bank said the changes were designed to help customers who accidentally bust their overdraft limits by a small amount, claiming that its new text message service and grace period would help stop customers ever having to be caught out by charges.

"We want to help our customers avoid accidentally slipping into the red and are giving them the tools to do just that," Ian Larkin, the managing director of consumer banking at Lloyds, said.

But Mr Taylor criticised the new charging structure for its complexity, saying banks should reveal the true cost of unauthorised overdrafts and only charge up to this amount.

Last week, HSBC unveiled plans for its cash machines to provide customers with warnings if their withdrawals will take them past their overdraft limit. The bank said it does not block withdrawals, in case they need money in an emergency. However, it said its new policy was designed to allow customers to make an "informed choice".