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Lloyds Bank accused of religious discrimination over free overdrafts on Islamic accounts

The high street bank said the changes reflect the needs of 'customers who cannot receive credit or debit interest due to their religious beliefs'

Lloyds Bank has said it will not charge Muslim customers if they go into their overdrafts.

The bank sent out a booklet this month explaining changes to its personal banking services, including one that would allow Muslims to avoid overdraft charges, The Telegraph reported.

The document stated: “We are removing the Monthly Overdraft Management Fee of £6 from our Islamic Account, Islamic Student Account and Islamic Graduate Account. So, if you use an Unplanned Overdraft on these accounts there won’t be any charges.”

Lloyds was accused of religious discrimination following the announcement. Barclays, Co-op Bank and RBS said they do not offer different bank accounts to Muslim customers.

James Daley, of the consumer group Fairer Finance, told The Telegraph: “The best thing would be for everyone to switch to the Islamic account to avoid these charges. But if everyone does that I doubt it will be financially viable for Lloyds.”

The “Sharia-approved” Islamic accounts were set up by the high street bank to appeal to Muslim customers who are not allowed to receive or pay interest under Sharia law.

On its website Lloyds says: “Following the guidance of Islam is an important part of everyday life, so we've made it an important part of everyday banking. Our Sharia committee of two independent scholars has guided us to create an account that’s right for you.”

However, a spokesman told The Telegraph that anyone can open an Islamic account, regardless of whether they are a Muslim or not.

“Our focus has always been on meeting the needs of UK businesses and personal customers. We offer a range of retail, business and investment products to meet the needs of our customers, available through all of our branches across the UK. The Islamic current account is for customers who cannot receive credit or debit interest due to their religious beliefs. All of our Islamic accounts comply with Islamic law and are available to anyone regardless of background or faith,” he said.

“These accounts are structured differently to our traditional accounts and do not offer credit interest or other features that are available on our other products. A comparison with the overdraft charging structure on other accounts is meaningless.”