Banking charges cut at Lloyds TSB

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Lloyds TSB has become the first big high-street bank to cut its overdraft fees.

Instead of charging customers £30 a day if they go overdrawn without permission, the bank will now levy £15 a month and then between £6 and £20 a day on a sliding scale, according to the size of the overdraft.

Its charge for bouncing a cheque, standing order or direct debit is going down from £35 to £20.

In addition, the interest rate applied to the unauthorised borrowing will be cut by around a third to bring it into line with the bank's rate for authorised borrowing, which currently stands at 19.3 per cent.

Lloyds TSB's decision follows a two-year campaign to get banks to lower their fees. Consumer groups have argued that the level of the charges imposed on customers who slip into the red is illegal. Their main argument has been that the fees are tantamount to a penalty and this is not permissible under contract law.

The fees should, they say, reflect only the costs to the bank of managing the overdraft and there should be no element of penalty.

In response, however, the banks say the charges are laid out clearly in the account terms and conditions and represent a fee for a specific service.

Next year, the banks and the Office of Fair Trading, which is investigating current account charges, are to go to court to get a ruling on whether the present regime is illegal. Some experts suggest that the case could drag on for months or even years. In the meantime, the tens of thousands of customers who are suing their banks for the return of overdraft charges have had their claims put on ice.

But it seems some banks are now set to pre-empt this case by reducing their fees.

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