Lloyds Banking Group PLC (LON:LLOY) has been accused of “gaming the system” in response to plans to make its overdrafts more expensive and complicated by the Labour MP Rachel Reeves.
Reeves, the MP for Leeds West who has campaigned for tougher rules on high cost credit, said it was “unacceptable” for financial institutions to try and “game the system at the expense of customers”, particularly those struggling financially.
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The FTSE 100 bank on Monday began moving its customers to a new tariff that will increase fees for anyone borrowing less than £4,100 while also introducing a tiered charging system that critics say will make it more difficult to work out how much a customer will pay when borrowing large sums.
Lloyds previously charged a flat daily rate of 1p per £7 of borrowing, but the new rates will use a tiered system starting at 1p per £6.
Under this new regime, customers borrowing less than £1,250 will pay an annual interest rate of some 61%, higher than products such as guarantor loans or credit cards for people with impaired credit histories, and more than three times the rates charged by First Direct and Nationwide.
Overdraft clampdown looms
The move has attracted particular attention as Lloyds is currently the biggest overdraft provider in the UK, controlling around a third of current accounts across the Lloyds Bank, Halifax, and Bank of Scotland brands.
It also comes as the Financial Conduct Authority, the UK markets regulator, prepares to crackdown on overdraft fees with proposals unveiled in December aimed at tackling higher fees for unarranged overdrafts as well as rules on using less complex pricing and advertising.
While Lloyds said in a statement that it “welcomed” the FCA’s move and that it was “the first major bank to remove charges for unplanned overdrafts”, Reeves said that while the bank’s new fee structures were legal, they were “not within the spirit of the FCA’s recommendations”.
Despite the incoming regulations, the FCA pulled back on plans to introduce a cap on overdraft fees last month amid concerns the banks could issue a court challenge.
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The regulator said that overdraft fees totalled more than £2.4bn in 2017 with about 30% from unarranged borrowing costs, which in some cases could be 10 times as high as payday lenders’ fees.
In late-afternoon trading Monday, Lloyds shares were up 0.4% at 54.9p.