LLOYDS Janet Pope BANKING Chief of Staff Group Chief Executives Office GROUP

~ Lloyds Banking Group pie 25 Gresham Street London EC2V 7HN

Rt Hon Andrew Tyrie MP Chairman of the Treasury Committee direct

facsimileHouse of Commons Wl11lloydsbankinggroupcom

Committee Office 14 Tothill Street London SW1H 9NB

22nd July 2016

Dear Mr Tyrie

Thank you for your letter dated 5th July 2016 on Personal Current Account (PCA) charges which you sent to Antonio Horta-Osorio He has asked me to respond and to let you have the detailed briefing which our team has prepared in answer to your questions

The Competition and Markets Authoritys (CMA) inquiry has clearly demonstrated that there is much more that can be done to help customers who use an overdraft and Lloyds Banking Group welcomes the Treasury Committees continued efforts to draw attention to this important issue I have attached a document that sets out in full our answers to the questions the Committee has posed and also shares our views on how the CMAs proposed remedies will help overdraft customers in the future

Our team would be happy to answer any further questions you have or discuss the CMA inquiry in more detail and Antonio of course would be happy to discuss this with you directly if you wish To assist the CMAs deliberations we have also developed an early prototype of what open data comparability could look like in personal current accounts and would be happy to demonstrate this to you and your team

Yours sincerely

Uoyds Banlling Group pie is registered in Scotland no 95000 Registered omce The Mound Ed1burgh EH11YZ

Lloyds Banking Group response on current account charges

22 July 2016

Introduction

There has been significant progress in the Personal Current Account (PCA) market in recent years Income from overdrafts as a whole has gone down and there has been a general rebalancing of fees between unplanned and planned overdrafts Charging structures are now more transparent

Online and mobile banking have transformed the market Text alerts and mobile apps mean customers are now more aware of how much money they have and with Faster Payments can transfer money instantly to avoid charges Customers can arrange a planned overdraft online or on their mobile phone and increase their limit if they need to Our customers can also amend or cancel standing orders and direct debits They can also cancel an overdraft from their mobile phone if they feel they no longer need it

The likelihood of customers incurring unplanned overdraft charges has also reduced Lloyds Banking Group (LBG) offers overdraft buffers which help customers avoid being charged fees when they use their overdraft by a small amount and grace periods which give customers time to correct the position if they go into either their planned or unplanned overdraft by mistake Online tools are in place to help customers manage their accounts Balance Extra (available in our Halifax brand) helps customers see their expected balance at the end of the month based on their current patterns of spending and scheduled payments

We offer a range of accounts in all three brands with interest and fee-free overdrafts for those customers who might be worried about running out of money at the end of the month We offer a range of accounts that prevent customers incurring unplanned fees basic accounts that are completely fee free for eligible customers and control accounts that prevent any payment being made that would incur an overdraft fee in return for a monthly fee To support customers in financial difficulty we also refund a substantial amount of fees incurred every year where customers have got in touch and discussed their position

These are positive changes but more can be done Competition between banks has resulted in different approaches to overdraft charging - some banks have daily fees and others charge fees and interest on debit balances This has made charges hard to compare particularly if customers are not sure how much they expect to borrow or how often they will use their overdraft over any given period Switching can also be a challenge as a customer with an overdraft will not always know if they can get the same overdraft with another provider

Properly implemented the CMAs remedies will help address the twin problems of comparability and switching By enabling more effective shopping around they will put pressure on providers to innovate improve their overdraft pricing and quality of service The proposed remedies will also have sufficient flexibility to ensure innovation is not stifled and that new and existing providers will be given the flexibility to improve and differentiate themselves They will also force all providers to send customers mobile and text messaging when they go into an unplanned overdraft and give them a minimum period of time to either pay money in or arrange a planned overdraft to avoid incurring unplanned fees

Response to TSCs specific questions

Question 1 What is the daily charge for a customer using an authorised overdraft

Lloyds Bank charges interest on planned overdrafts rather than a daily fee These are summarised in table 1 overleaf

A pound6 monthly overdraft fee may also be charged A customer will only pay this fee if they use a planned overdraft by more than any interest-and-fee-free amount or use an unplanned overdraft by more than any buffer at any time during the monthly billing period

Table 1 Lloyds Bank overdraft interest rates

Current Account Interest and fee-free planned overdraft amount

Overdraft interest rate (per month)

Overdraft interest rate (EAR)

Classic pound25 153 1994

Silver pound50 153 1994

Club Lloyds Club Lloyds Silver

pound100 153 1994

Gold Club Lloyds Gold

pound150 153 1994

Platinum Club Lloyds Platinum

pound300 134 1728

Premier Club Lloyds Premier

pound500 120 1543

Note These interest rates are correct as of July 2016 Interest rates are variable EAR is Equivalent Annual Rate This is the actual interest rate of an overdraft It does not take into account fees and charges Different rates apply for Student and Graduate accounts

Halifax has the following planned daily overdraft charges

Table 2 Halifax planned overdraft daily charges

Account Amount of overdraft Daily fee

Reward Current Account Up to and including pound199999 pound1

Current Account (and with Control added) pound2000 to pound299999 pound2

Ultimate Reward Current Account

pound3000 and above pound3

Note Ultimate Reward Current Account has no daily fees up to pound300 Different rates apply for Student Current Account Cardcash and Basic Account

Question 2 Is t1ere a cap on tl1e charge incurred by a customer using an authorised overdraft If so what is the 1naxi1nurn charge that a custoner can incur in any week 1nonth or year

Lloyds Bank and Halifax do not have a maximum monthly charge for using a planned overdraft

Lloyds Bank charges debit interest rather than daily fees so the amount a customer pays will depend on how much they borrow and for how long As an example a Lloyds Classic customer borrowing pound1000 for 28 days would pay pound1650 in total a pound6 monthly overdralt usage fee plus pound1050 in debit interest Halifax has tiered daily charges A Halifax Current Account customer borrowing pound1000 for 28 days would pay pound28 - pound1 per day

Question 3 What is the daily charge for an unauthorised overdraft

Lloyds Bank has the following daily unarranged overdraft charges

Table 3 Lloyds Bank unplanned overdraft daily charges

Account Amount of overdraft Daily fee

Classic

Silver

Gold

Club Lloyds

Club Lloyds Silver

Club Lloyds Gold

Premier

Club Lloyds Premier

Platinum

Club Lloyds

Platinum

Unplanned overdraft of pound10 or less No fee

Unplanned overdraft is more than pound10 but less than

pound25

pound5

Unplanned overdraft is pound25 or more pound10

This was calculated using Lloyds Banks overdraft calculator

Halifax has the following daily unarranged overdraft fees

Table 4 Halifax unplanned overdraft daily charges

Account Amount overdraft

of Daily fee

Current Account with Control added

Reward Current Account

Current Account without Control added

Ultimate Reward Current Account

All balances

All balances

pound1

pound5

In addition Halifax offers the following overdraft buffers

Table 5 Halifax overdraft buffer

Account Buffer Impact

Ultimate Reward Current

Reward Current Account

Current Account

Account pound50

pound10

No daily overdraft fees if you are

in debit by pound50 or less

No daily overdraft fees if you are

in debit by pound10 or less

Note Halifaxs overdraft buffer relates to the first pound10 or pound50 of overdraft spending shywhether a customer is in a planned or unplanned overdraft In contrast Lloyds Banks overdraft buffers relate to the first pound10 of unplanned overdraft usage

Question 4 Is there a cap on the charge incurred by a customer using an unauthorised overdraft If so what is the maximum charge that a customer can incur in any week month or year

Lloyds Bank customers will be charged a maximum of eight daily fees in a monthly billing period Therefore the maximum monthly charge a customer could pay in unarranged overdraft fees would be pound86 (including the monthly overdraft usage fee)

Halifax customers could be charged a maximum of pound100 in unplanned daily overdraft fees in a monthly billing period

In reality however customers very rarely pay this much For both Lloyds Bank and Halifax customers over half of unplanned overdraft customers paid no more than pound25 in unplanned overdraft charges in any month2 and around three quarters paid no more than pound50

Over the course of 2014

Question 5 Are there any other costs incurred by a customer using an unauthorised overdraft compared to an authorised overdraft - such as additional fees or interest rates

Unplanned overdraft users do not incur any additional fees or interest rates compared to using a planned overdraft other than the daily fees described above For Lloyds Bank debit interest is the same for both planned and unplanned overdrafts

Sometimes LBG will not offer a customer an unplanned overdraft or will not extend an existing unplanned overdraft In these situations if a Lloyds Bank customer attempts to make a payment by direct debit or cheque but does not have sufficient funds the payment will be returned and a returned item fee will be charged Lloyds Bank charges pound10 for a returned item capped at a maximum of three per day Customers benefit from a retry period so that if a customer pays in sufficient funds by 330pm the payment will be made and a returned item fee will be avoided Halifax does not charge returned item fees for its Current Reward and Ultimate Reward accounts

Question 6 What action does LloydsHalifax take - if any - when a customer enters into an unauthorised overdraft

LBG takes the following action when a customer enters into either their planned or unplanned overdraft

(a) customers who have opted in to free text alerts will receive near-limit and overshylimit texts

(b) customers are sent a formal notification of charges letter including a telephone number for customers who may be in financial difficulty Customers are given at least 14 days notice before fees are debited from their account

(c) mobile and online customers are shown their account balance and overdraft limit whenever they view account status online or via the LBG app

(d) all customers receive an Annual Statement which details all fees and charges they have incurred and

(e) no further overdraft fees are charged to any customer who remains in their unplanned overdraft for 30 consecutive days

In addition there are key unplanned overdraft usage thresholds at which point LBG monitors customers for signs they are potentially entering into financial difficulty as described below

Further Background

Unplanned overdrafts are designed for short term rather than long-term borrowing

Planned and unplanned overdrafts are intended for different purposes A planned overdraft is agreed in advance between LBG and a customer and sets the limit up to which a customer may go overdrawn on their account Customers may apply for a planned overdraft or ask to extend their existing overdraft limit at any time Planned overdrafts are designed for relatively short term borrowing of no more than several months at a time but often for much shorter time periods for example to help a customer manage their finances if they have to make a significant purchase shortly before their pay-day Around one third of LBGs active accounts use a planned overdraft with half of these customers using it for less than eight days per month on average

Unplanned overdrafts are not arranged in advance and are intended as a short-term back-up facility rather than for expected borrowing Providing unplanned credit is a valuable service to customers which means they can make critical payments such as a mortgage or utility bill and make payments for essential services such as buying petrol late at night even if they do not have the funds or an agreed credit line This saves all customers not just those who use an unplanned

overdraft from the worry of missing critical payments or the inability to complete a purchase at a critical time There are also financial benefits from avoiding missed payments and the missed payment penalties including withdrawal or cancellation of service which may result Customers are unable to use their unplanned overdrafts for ATM withdrawals standing orders or Faster Payments

In any given month approximately 7 of active customers will use an unplanned overdraft and on average for just two days The CMA found that 76 of customers did not use an unplanned overdraft at all over a year For customers using their unplanned overdraft for extended periods LBG caps the total number of days per month for which charges can be incurred

It is important to stress that overdrafts might not always be the most appropriate product for the customers needs and loans credit cards and other forms of credit might be better We have developed a Lending Pathways approach to help customers in branch choose the most appropriate form of credit for their needs This takes into account what the customer needs the money for how much they want to borrow and for how long

Summary of LBG initiatives to help customers manage their overdraft

LBG publishes all its overdraft rates and charges online We offer customers a range of tools to help them manage their overdraft usage These include

(a) The process to agree a new or revised limit is quick and simple so that customers are charged only for a planned overdraft Customers can do this online or via their mobile app

(b) Overdraft calculators to help customers work out how much they can expect to pay for overdraft use 3

(c) If a payment takes a customer into their unplanned overdraft they will receive an over-limit text alert4

(d) Customers have a grace period of up to midnight to pay in sufficient funds to avoid usage charges and up to 3 30pm to ensure any direct debit or cheque is paid

(e) If a customer only goes into their overdraft by less than a buffer amount (pound10 or pound50 depending on their PCA) then they will not incur any overdraft fees

(f) Balance Extra available with Halifax helps customers see their expected balance at the end of the month based on patterns of spending and scheduled payments

(g) Customers who are unable to pay in sufficient funds and remain in their unplanned overdraft are protected by fee caps Unplanned fees are capped at a certain number of days each month 8 days for Lloyds Bank and 20 days for Halifax5 bull

(h) LBG also offers a range of PCAs with interest and fee-free overdrafts For example Club Lloyds offers up to the first pound100 and Halifax Reward up to the first pound50 of a planned overdraft as interest-and fee-free Added value accounts offer larger interest and fee-free amounts

ht tpwwwlloydsbankcomcurrent middotaccountspersonal-overdraftsoverdraft-calculatorasp and

httpwww halif axco ukba nkaccountsove rdr aftsove rd raft-calculator I Assuming the customer has chosen to opt-in to t he free text ale rt service

Halifax has an unplanned fee cap of pound100 per month which equates to 20 days at pound5 per day

Response to TSCs specific questions

Question 1 What is the daily charge for a customer using an authorised overdraft

Lloyds Bank charges interest on planned overdrafts rather than a daily fee These are summarised in table 1 overleaf

A pound6 monthly overdraft fee may also be charged A customer will only pay this fee if they use a planned overdraft by more than any interest-and-fee-free amount or use an unplanned overdraft by more than any buffer at any time during the monthly billing period

Table 1 Lloyds Bank overdraft interest rates

Current Account Interest and fee-free planned overdraft amount

Overdraft interest rate (per month)

Overdraft interest rate (EAR)

Classic pound25 153 1994

Silver pound50 153 1994

Club Lloyds Club Lloyds Silver

pound100 153 1994

Gold Club Lloyds Gold

pound150 153 1994

Platinum Club Lloyds Platinum

pound300 134 1728

Premier Club Lloyds Premier

pound500 120 1543

Note These interest rates are correct as of July 2016 Interest rates are variable EAR is Equivalent Annual Rate This is the actual interest rate of an overdraft It does not take into account fees and charges Different rates apply for Student and Graduate accounts

Halifax has the following planned daily overdraft charges

Table 2 Halifax planned overdraft daily charges

Account Amount of overdraft Daily fee

Reward Current Account Up to and including pound199999 pound1

Current Account (and with Control added) pound2000 to pound299999 pound2

Ultimate Reward Current Account

pound3000 and above pound3

Note Ultimate Reward Current Account has no daily fees up to pound300 Different rates apply for Student Current Account Cardcash and Basic Account

Question 2 Is t1ere a cap on tl1e charge incurred by a customer using an authorised overdraft If so what is the 1naxi1nurn charge that a custoner can incur in any week 1nonth or year

Lloyds Bank and Halifax do not have a maximum monthly charge for using a planned overdraft

Lloyds Bank charges debit interest rather than daily fees so the amount a customer pays will depend on how much they borrow and for how long As an example a Lloyds Classic customer borrowing pound1000 for 28 days would pay pound1650 in total a pound6 monthly overdralt usage fee plus pound1050 in debit interest Halifax has tiered daily charges A Halifax Current Account customer borrowing pound1000 for 28 days would pay pound28 - pound1 per day

Question 3 What is the daily charge for an unauthorised overdraft

Lloyds Bank has the following daily unarranged overdraft charges

Table 3 Lloyds Bank unplanned overdraft daily charges

Account Amount of overdraft Daily fee

Classic

Silver

Gold

Club Lloyds

Club Lloyds Silver

Club Lloyds Gold

Premier

Club Lloyds Premier

Platinum

Club Lloyds

Platinum

Unplanned overdraft of pound10 or less No fee

Unplanned overdraft is more than pound10 but less than

pound25

pound5

Unplanned overdraft is pound25 or more pound10

This was calculated using Lloyds Banks overdraft calculator

Halifax has the following daily unarranged overdraft fees

Table 4 Halifax unplanned overdraft daily charges

Account Amount overdraft

of Daily fee

Current Account with Control added

Reward Current Account

Current Account without Control added

Ultimate Reward Current Account

All balances

All balances

pound1

pound5

In addition Halifax offers the following overdraft buffers

Table 5 Halifax overdraft buffer

Account Buffer Impact

Ultimate Reward Current

Reward Current Account

Current Account

Account pound50

pound10

No daily overdraft fees if you are

in debit by pound50 or less

No daily overdraft fees if you are

in debit by pound10 or less

Note Halifaxs overdraft buffer relates to the first pound10 or pound50 of overdraft spending shywhether a customer is in a planned or unplanned overdraft In contrast Lloyds Banks overdraft buffers relate to the first pound10 of unplanned overdraft usage

Question 4 Is there a cap on the charge incurred by a customer using an unauthorised overdraft If so what is the maximum charge that a customer can incur in any week month or year

Lloyds Bank customers will be charged a maximum of eight daily fees in a monthly billing period Therefore the maximum monthly charge a customer could pay in unarranged overdraft fees would be pound86 (including the monthly overdraft usage fee)

Halifax customers could be charged a maximum of pound100 in unplanned daily overdraft fees in a monthly billing period

In reality however customers very rarely pay this much For both Lloyds Bank and Halifax customers over half of unplanned overdraft customers paid no more than pound25 in unplanned overdraft charges in any month2 and around three quarters paid no more than pound50

Over the course of 2014

Question 5 Are there any other costs incurred by a customer using an unauthorised overdraft compared to an authorised overdraft - such as additional fees or interest rates

Unplanned overdraft users do not incur any additional fees or interest rates compared to using a planned overdraft other than the daily fees described above For Lloyds Bank debit interest is the same for both planned and unplanned overdrafts

Sometimes LBG will not offer a customer an unplanned overdraft or will not extend an existing unplanned overdraft In these situations if a Lloyds Bank customer attempts to make a payment by direct debit or cheque but does not have sufficient funds the payment will be returned and a returned item fee will be charged Lloyds Bank charges pound10 for a returned item capped at a maximum of three per day Customers benefit from a retry period so that if a customer pays in sufficient funds by 330pm the payment will be made and a returned item fee will be avoided Halifax does not charge returned item fees for its Current Reward and Ultimate Reward accounts

Question 6 What action does LloydsHalifax take - if any - when a customer enters into an unauthorised overdraft

LBG takes the following action when a customer enters into either their planned or unplanned overdraft

(a) customers who have opted in to free text alerts will receive near-limit and overshylimit texts

(b) customers are sent a formal notification of charges letter including a telephone number for customers who may be in financial difficulty Customers are given at least 14 days notice before fees are debited from their account

(c) mobile and online customers are shown their account balance and overdraft limit whenever they view account status online or via the LBG app

(d) all customers receive an Annual Statement which details all fees and charges they have incurred and

(e) no further overdraft fees are charged to any customer who remains in their unplanned overdraft for 30 consecutive days

In addition there are key unplanned overdraft usage thresholds at which point LBG monitors customers for signs they are potentially entering into financial difficulty as described below

Further Background

Unplanned overdrafts are designed for short term rather than long-term borrowing

Planned and unplanned overdrafts are intended for different purposes A planned overdraft is agreed in advance between LBG and a customer and sets the limit up to which a customer may go overdrawn on their account Customers may apply for a planned overdraft or ask to extend their existing overdraft limit at any time Planned overdrafts are designed for relatively short term borrowing of no more than several months at a time but often for much shorter time periods for example to help a customer manage their finances if they have to make a significant purchase shortly before their pay-day Around one third of LBGs active accounts use a planned overdraft with half of these customers using it for less than eight days per month on average

Unplanned overdrafts are not arranged in advance and are intended as a short-term back-up facility rather than for expected borrowing Providing unplanned credit is a valuable service to customers which means they can make critical payments such as a mortgage or utility bill and make payments for essential services such as buying petrol late at night even if they do not have the funds or an agreed credit line This saves all customers not just those who use an unplanned

overdraft from the worry of missing critical payments or the inability to complete a purchase at a critical time There are also financial benefits from avoiding missed payments and the missed payment penalties including withdrawal or cancellation of service which may result Customers are unable to use their unplanned overdrafts for ATM withdrawals standing orders or Faster Payments

In any given month approximately 7 of active customers will use an unplanned overdraft and on average for just two days The CMA found that 76 of customers did not use an unplanned overdraft at all over a year For customers using their unplanned overdraft for extended periods LBG caps the total number of days per month for which charges can be incurred

It is important to stress that overdrafts might not always be the most appropriate product for the customers needs and loans credit cards and other forms of credit might be better We have developed a Lending Pathways approach to help customers in branch choose the most appropriate form of credit for their needs This takes into account what the customer needs the money for how much they want to borrow and for how long

Summary of LBG initiatives to help customers manage their overdraft

LBG publishes all its overdraft rates and charges online We offer customers a range of tools to help them manage their overdraft usage These include

(a) The process to agree a new or revised limit is quick and simple so that customers are charged only for a planned overdraft Customers can do this online or via their mobile app

(b) Overdraft calculators to help customers work out how much they can expect to pay for overdraft use 3

(c) If a payment takes a customer into their unplanned overdraft they will receive an over-limit text alert4

(d) Customers have a grace period of up to midnight to pay in sufficient funds to avoid usage charges and up to 3 30pm to ensure any direct debit or cheque is paid

(e) If a customer only goes into their overdraft by less than a buffer amount (pound10 or pound50 depending on their PCA) then they will not incur any overdraft fees

(f) Balance Extra available with Halifax helps customers see their expected balance at the end of the month based on patterns of spending and scheduled payments

(g) Customers who are unable to pay in sufficient funds and remain in their unplanned overdraft are protected by fee caps Unplanned fees are capped at a certain number of days each month 8 days for Lloyds Bank and 20 days for Halifax5 bull

(h) LBG also offers a range of PCAs with interest and fee-free overdrafts For example Club Lloyds offers up to the first pound100 and Halifax Reward up to the first pound50 of a planned overdraft as interest-and fee-free Added value accounts offer larger interest and fee-free amounts

ht tpwwwlloydsbankcomcurrent middotaccountspersonal-overdraftsoverdraft-calculatorasp and

httpwww halif axco ukba nkaccountsove rdr aftsove rd raft-calculator I Assuming the customer has chosen to opt-in to t he free text ale rt service

Halifax has an unplanned fee cap of pound100 per month which equates to 20 days at pound5 per day

Question 2 Is t1ere a cap on tl1e charge incurred by a customer using an authorised overdraft If so what is the 1naxi1nurn charge that a custoner can incur in any week 1nonth or year

Lloyds Bank and Halifax do not have a maximum monthly charge for using a planned overdraft

Lloyds Bank charges debit interest rather than daily fees so the amount a customer pays will depend on how much they borrow and for how long As an example a Lloyds Classic customer borrowing pound1000 for 28 days would pay pound1650 in total a pound6 monthly overdralt usage fee plus pound1050 in debit interest Halifax has tiered daily charges A Halifax Current Account customer borrowing pound1000 for 28 days would pay pound28 - pound1 per day

Question 3 What is the daily charge for an unauthorised overdraft

Lloyds Bank has the following daily unarranged overdraft charges

Table 3 Lloyds Bank unplanned overdraft daily charges

Account Amount of overdraft Daily fee

Classic

Silver

Gold

Club Lloyds

Club Lloyds Silver

Club Lloyds Gold

Premier

Club Lloyds Premier

Platinum

Club Lloyds

Platinum

Unplanned overdraft of pound10 or less No fee

Unplanned overdraft is more than pound10 but less than

pound25

pound5

Unplanned overdraft is pound25 or more pound10

This was calculated using Lloyds Banks overdraft calculator

Halifax has the following daily unarranged overdraft fees

Table 4 Halifax unplanned overdraft daily charges

Account Amount overdraft

of Daily fee

Current Account with Control added

Reward Current Account

Current Account without Control added

Ultimate Reward Current Account

All balances

All balances

pound1

pound5

In addition Halifax offers the following overdraft buffers

Table 5 Halifax overdraft buffer

Account Buffer Impact

Ultimate Reward Current

Reward Current Account

Current Account

Account pound50

pound10

No daily overdraft fees if you are

in debit by pound50 or less

No daily overdraft fees if you are

in debit by pound10 or less

Note Halifaxs overdraft buffer relates to the first pound10 or pound50 of overdraft spending shywhether a customer is in a planned or unplanned overdraft In contrast Lloyds Banks overdraft buffers relate to the first pound10 of unplanned overdraft usage

Question 4 Is there a cap on the charge incurred by a customer using an unauthorised overdraft If so what is the maximum charge that a customer can incur in any week month or year

Lloyds Bank customers will be charged a maximum of eight daily fees in a monthly billing period Therefore the maximum monthly charge a customer could pay in unarranged overdraft fees would be pound86 (including the monthly overdraft usage fee)

Halifax customers could be charged a maximum of pound100 in unplanned daily overdraft fees in a monthly billing period

In reality however customers very rarely pay this much For both Lloyds Bank and Halifax customers over half of unplanned overdraft customers paid no more than pound25 in unplanned overdraft charges in any month2 and around three quarters paid no more than pound50

Over the course of 2014

Question 5 Are there any other costs incurred by a customer using an unauthorised overdraft compared to an authorised overdraft - such as additional fees or interest rates

Unplanned overdraft users do not incur any additional fees or interest rates compared to using a planned overdraft other than the daily fees described above For Lloyds Bank debit interest is the same for both planned and unplanned overdrafts

Sometimes LBG will not offer a customer an unplanned overdraft or will not extend an existing unplanned overdraft In these situations if a Lloyds Bank customer attempts to make a payment by direct debit or cheque but does not have sufficient funds the payment will be returned and a returned item fee will be charged Lloyds Bank charges pound10 for a returned item capped at a maximum of three per day Customers benefit from a retry period so that if a customer pays in sufficient funds by 330pm the payment will be made and a returned item fee will be avoided Halifax does not charge returned item fees for its Current Reward and Ultimate Reward accounts

Question 6 What action does LloydsHalifax take - if any - when a customer enters into an unauthorised overdraft

LBG takes the following action when a customer enters into either their planned or unplanned overdraft

(a) customers who have opted in to free text alerts will receive near-limit and overshylimit texts

(b) customers are sent a formal notification of charges letter including a telephone number for customers who may be in financial difficulty Customers are given at least 14 days notice before fees are debited from their account

(c) mobile and online customers are shown their account balance and overdraft limit whenever they view account status online or via the LBG app

(d) all customers receive an Annual Statement which details all fees and charges they have incurred and

(e) no further overdraft fees are charged to any customer who remains in their unplanned overdraft for 30 consecutive days

In addition there are key unplanned overdraft usage thresholds at which point LBG monitors customers for signs they are potentially entering into financial difficulty as described below

Further Background

Unplanned overdrafts are designed for short term rather than long-term borrowing

Planned and unplanned overdrafts are intended for different purposes A planned overdraft is agreed in advance between LBG and a customer and sets the limit up to which a customer may go overdrawn on their account Customers may apply for a planned overdraft or ask to extend their existing overdraft limit at any time Planned overdrafts are designed for relatively short term borrowing of no more than several months at a time but often for much shorter time periods for example to help a customer manage their finances if they have to make a significant purchase shortly before their pay-day Around one third of LBGs active accounts use a planned overdraft with half of these customers using it for less than eight days per month on average

Unplanned overdrafts are not arranged in advance and are intended as a short-term back-up facility rather than for expected borrowing Providing unplanned credit is a valuable service to customers which means they can make critical payments such as a mortgage or utility bill and make payments for essential services such as buying petrol late at night even if they do not have the funds or an agreed credit line This saves all customers not just those who use an unplanned

overdraft from the worry of missing critical payments or the inability to complete a purchase at a critical time There are also financial benefits from avoiding missed payments and the missed payment penalties including withdrawal or cancellation of service which may result Customers are unable to use their unplanned overdrafts for ATM withdrawals standing orders or Faster Payments

In any given month approximately 7 of active customers will use an unplanned overdraft and on average for just two days The CMA found that 76 of customers did not use an unplanned overdraft at all over a year For customers using their unplanned overdraft for extended periods LBG caps the total number of days per month for which charges can be incurred

It is important to stress that overdrafts might not always be the most appropriate product for the customers needs and loans credit cards and other forms of credit might be better We have developed a Lending Pathways approach to help customers in branch choose the most appropriate form of credit for their needs This takes into account what the customer needs the money for how much they want to borrow and for how long

Summary of LBG initiatives to help customers manage their overdraft

LBG publishes all its overdraft rates and charges online We offer customers a range of tools to help them manage their overdraft usage These include

(a) The process to agree a new or revised limit is quick and simple so that customers are charged only for a planned overdraft Customers can do this online or via their mobile app

(b) Overdraft calculators to help customers work out how much they can expect to pay for overdraft use 3

(c) If a payment takes a customer into their unplanned overdraft they will receive an over-limit text alert4

(d) Customers have a grace period of up to midnight to pay in sufficient funds to avoid usage charges and up to 3 30pm to ensure any direct debit or cheque is paid

(e) If a customer only goes into their overdraft by less than a buffer amount (pound10 or pound50 depending on their PCA) then they will not incur any overdraft fees

(f) Balance Extra available with Halifax helps customers see their expected balance at the end of the month based on patterns of spending and scheduled payments

(g) Customers who are unable to pay in sufficient funds and remain in their unplanned overdraft are protected by fee caps Unplanned fees are capped at a certain number of days each month 8 days for Lloyds Bank and 20 days for Halifax5 bull

(h) LBG also offers a range of PCAs with interest and fee-free overdrafts For example Club Lloyds offers up to the first pound100 and Halifax Reward up to the first pound50 of a planned overdraft as interest-and fee-free Added value accounts offer larger interest and fee-free amounts

ht tpwwwlloydsbankcomcurrent middotaccountspersonal-overdraftsoverdraft-calculatorasp and

httpwww halif axco ukba nkaccountsove rdr aftsove rd raft-calculator I Assuming the customer has chosen to opt-in to t he free text ale rt service

Halifax has an unplanned fee cap of pound100 per month which equates to 20 days at pound5 per day

Halifax has the following daily unarranged overdraft fees

Table 4 Halifax unplanned overdraft daily charges

Account Amount overdraft

of Daily fee

Current Account with Control added

Reward Current Account

Current Account without Control added

Ultimate Reward Current Account

All balances

All balances

pound1

pound5

In addition Halifax offers the following overdraft buffers

Table 5 Halifax overdraft buffer

Account Buffer Impact

Ultimate Reward Current

Reward Current Account

Current Account

Account pound50

pound10

No daily overdraft fees if you are

in debit by pound50 or less

No daily overdraft fees if you are

in debit by pound10 or less

Note Halifaxs overdraft buffer relates to the first pound10 or pound50 of overdraft spending shywhether a customer is in a planned or unplanned overdraft In contrast Lloyds Banks overdraft buffers relate to the first pound10 of unplanned overdraft usage

Question 4 Is there a cap on the charge incurred by a customer using an unauthorised overdraft If so what is the maximum charge that a customer can incur in any week month or year

Lloyds Bank customers will be charged a maximum of eight daily fees in a monthly billing period Therefore the maximum monthly charge a customer could pay in unarranged overdraft fees would be pound86 (including the monthly overdraft usage fee)

Halifax customers could be charged a maximum of pound100 in unplanned daily overdraft fees in a monthly billing period

In reality however customers very rarely pay this much For both Lloyds Bank and Halifax customers over half of unplanned overdraft customers paid no more than pound25 in unplanned overdraft charges in any month2 and around three quarters paid no more than pound50

Over the course of 2014

Question 5 Are there any other costs incurred by a customer using an unauthorised overdraft compared to an authorised overdraft - such as additional fees or interest rates

Unplanned overdraft users do not incur any additional fees or interest rates compared to using a planned overdraft other than the daily fees described above For Lloyds Bank debit interest is the same for both planned and unplanned overdrafts

Sometimes LBG will not offer a customer an unplanned overdraft or will not extend an existing unplanned overdraft In these situations if a Lloyds Bank customer attempts to make a payment by direct debit or cheque but does not have sufficient funds the payment will be returned and a returned item fee will be charged Lloyds Bank charges pound10 for a returned item capped at a maximum of three per day Customers benefit from a retry period so that if a customer pays in sufficient funds by 330pm the payment will be made and a returned item fee will be avoided Halifax does not charge returned item fees for its Current Reward and Ultimate Reward accounts

Question 6 What action does LloydsHalifax take - if any - when a customer enters into an unauthorised overdraft

LBG takes the following action when a customer enters into either their planned or unplanned overdraft

(a) customers who have opted in to free text alerts will receive near-limit and overshylimit texts

(b) customers are sent a formal notification of charges letter including a telephone number for customers who may be in financial difficulty Customers are given at least 14 days notice before fees are debited from their account

(c) mobile and online customers are shown their account balance and overdraft limit whenever they view account status online or via the LBG app

(d) all customers receive an Annual Statement which details all fees and charges they have incurred and

(e) no further overdraft fees are charged to any customer who remains in their unplanned overdraft for 30 consecutive days

In addition there are key unplanned overdraft usage thresholds at which point LBG monitors customers for signs they are potentially entering into financial difficulty as described below

Further Background

Unplanned overdrafts are designed for short term rather than long-term borrowing

Planned and unplanned overdrafts are intended for different purposes A planned overdraft is agreed in advance between LBG and a customer and sets the limit up to which a customer may go overdrawn on their account Customers may apply for a planned overdraft or ask to extend their existing overdraft limit at any time Planned overdrafts are designed for relatively short term borrowing of no more than several months at a time but often for much shorter time periods for example to help a customer manage their finances if they have to make a significant purchase shortly before their pay-day Around one third of LBGs active accounts use a planned overdraft with half of these customers using it for less than eight days per month on average

Unplanned overdrafts are not arranged in advance and are intended as a short-term back-up facility rather than for expected borrowing Providing unplanned credit is a valuable service to customers which means they can make critical payments such as a mortgage or utility bill and make payments for essential services such as buying petrol late at night even if they do not have the funds or an agreed credit line This saves all customers not just those who use an unplanned

overdraft from the worry of missing critical payments or the inability to complete a purchase at a critical time There are also financial benefits from avoiding missed payments and the missed payment penalties including withdrawal or cancellation of service which may result Customers are unable to use their unplanned overdrafts for ATM withdrawals standing orders or Faster Payments

In any given month approximately 7 of active customers will use an unplanned overdraft and on average for just two days The CMA found that 76 of customers did not use an unplanned overdraft at all over a year For customers using their unplanned overdraft for extended periods LBG caps the total number of days per month for which charges can be incurred

It is important to stress that overdrafts might not always be the most appropriate product for the customers needs and loans credit cards and other forms of credit might be better We have developed a Lending Pathways approach to help customers in branch choose the most appropriate form of credit for their needs This takes into account what the customer needs the money for how much they want to borrow and for how long

Summary of LBG initiatives to help customers manage their overdraft

LBG publishes all its overdraft rates and charges online We offer customers a range of tools to help them manage their overdraft usage These include

(a) The process to agree a new or revised limit is quick and simple so that customers are charged only for a planned overdraft Customers can do this online or via their mobile app

(b) Overdraft calculators to help customers work out how much they can expect to pay for overdraft use 3

(c) If a payment takes a customer into their unplanned overdraft they will receive an over-limit text alert4

(d) Customers have a grace period of up to midnight to pay in sufficient funds to avoid usage charges and up to 3 30pm to ensure any direct debit or cheque is paid

(e) If a customer only goes into their overdraft by less than a buffer amount (pound10 or pound50 depending on their PCA) then they will not incur any overdraft fees

(f) Balance Extra available with Halifax helps customers see their expected balance at the end of the month based on patterns of spending and scheduled payments

(g) Customers who are unable to pay in sufficient funds and remain in their unplanned overdraft are protected by fee caps Unplanned fees are capped at a certain number of days each month 8 days for Lloyds Bank and 20 days for Halifax5 bull

(h) LBG also offers a range of PCAs with interest and fee-free overdrafts For example Club Lloyds offers up to the first pound100 and Halifax Reward up to the first pound50 of a planned overdraft as interest-and fee-free Added value accounts offer larger interest and fee-free amounts

ht tpwwwlloydsbankcomcurrent middotaccountspersonal-overdraftsoverdraft-calculatorasp and

httpwww halif axco ukba nkaccountsove rdr aftsove rd raft-calculator I Assuming the customer has chosen to opt-in to t he free text ale rt service

Halifax has an unplanned fee cap of pound100 per month which equates to 20 days at pound5 per day

Question 5 Are there any other costs incurred by a customer using an unauthorised overdraft compared to an authorised overdraft - such as additional fees or interest rates

Unplanned overdraft users do not incur any additional fees or interest rates compared to using a planned overdraft other than the daily fees described above For Lloyds Bank debit interest is the same for both planned and unplanned overdrafts

Sometimes LBG will not offer a customer an unplanned overdraft or will not extend an existing unplanned overdraft In these situations if a Lloyds Bank customer attempts to make a payment by direct debit or cheque but does not have sufficient funds the payment will be returned and a returned item fee will be charged Lloyds Bank charges pound10 for a returned item capped at a maximum of three per day Customers benefit from a retry period so that if a customer pays in sufficient funds by 330pm the payment will be made and a returned item fee will be avoided Halifax does not charge returned item fees for its Current Reward and Ultimate Reward accounts

Question 6 What action does LloydsHalifax take - if any - when a customer enters into an unauthorised overdraft

LBG takes the following action when a customer enters into either their planned or unplanned overdraft

(a) customers who have opted in to free text alerts will receive near-limit and overshylimit texts

(b) customers are sent a formal notification of charges letter including a telephone number for customers who may be in financial difficulty Customers are given at least 14 days notice before fees are debited from their account

(c) mobile and online customers are shown their account balance and overdraft limit whenever they view account status online or via the LBG app

(d) all customers receive an Annual Statement which details all fees and charges they have incurred and

(e) no further overdraft fees are charged to any customer who remains in their unplanned overdraft for 30 consecutive days

In addition there are key unplanned overdraft usage thresholds at which point LBG monitors customers for signs they are potentially entering into financial difficulty as described below

Further Background

Unplanned overdrafts are designed for short term rather than long-term borrowing

Planned and unplanned overdrafts are intended for different purposes A planned overdraft is agreed in advance between LBG and a customer and sets the limit up to which a customer may go overdrawn on their account Customers may apply for a planned overdraft or ask to extend their existing overdraft limit at any time Planned overdrafts are designed for relatively short term borrowing of no more than several months at a time but often for much shorter time periods for example to help a customer manage their finances if they have to make a significant purchase shortly before their pay-day Around one third of LBGs active accounts use a planned overdraft with half of these customers using it for less than eight days per month on average

Unplanned overdrafts are not arranged in advance and are intended as a short-term back-up facility rather than for expected borrowing Providing unplanned credit is a valuable service to customers which means they can make critical payments such as a mortgage or utility bill and make payments for essential services such as buying petrol late at night even if they do not have the funds or an agreed credit line This saves all customers not just those who use an unplanned

overdraft from the worry of missing critical payments or the inability to complete a purchase at a critical time There are also financial benefits from avoiding missed payments and the missed payment penalties including withdrawal or cancellation of service which may result Customers are unable to use their unplanned overdrafts for ATM withdrawals standing orders or Faster Payments

In any given month approximately 7 of active customers will use an unplanned overdraft and on average for just two days The CMA found that 76 of customers did not use an unplanned overdraft at all over a year For customers using their unplanned overdraft for extended periods LBG caps the total number of days per month for which charges can be incurred

It is important to stress that overdrafts might not always be the most appropriate product for the customers needs and loans credit cards and other forms of credit might be better We have developed a Lending Pathways approach to help customers in branch choose the most appropriate form of credit for their needs This takes into account what the customer needs the money for how much they want to borrow and for how long

Summary of LBG initiatives to help customers manage their overdraft

LBG publishes all its overdraft rates and charges online We offer customers a range of tools to help them manage their overdraft usage These include

(a) The process to agree a new or revised limit is quick and simple so that customers are charged only for a planned overdraft Customers can do this online or via their mobile app

(b) Overdraft calculators to help customers work out how much they can expect to pay for overdraft use 3

(c) If a payment takes a customer into their unplanned overdraft they will receive an over-limit text alert4

(d) Customers have a grace period of up to midnight to pay in sufficient funds to avoid usage charges and up to 3 30pm to ensure any direct debit or cheque is paid

(e) If a customer only goes into their overdraft by less than a buffer amount (pound10 or pound50 depending on their PCA) then they will not incur any overdraft fees

(f) Balance Extra available with Halifax helps customers see their expected balance at the end of the month based on patterns of spending and scheduled payments

(g) Customers who are unable to pay in sufficient funds and remain in their unplanned overdraft are protected by fee caps Unplanned fees are capped at a certain number of days each month 8 days for Lloyds Bank and 20 days for Halifax5 bull

(h) LBG also offers a range of PCAs with interest and fee-free overdrafts For example Club Lloyds offers up to the first pound100 and Halifax Reward up to the first pound50 of a planned overdraft as interest-and fee-free Added value accounts offer larger interest and fee-free amounts

ht tpwwwlloydsbankcomcurrent middotaccountspersonal-overdraftsoverdraft-calculatorasp and

httpwww halif axco ukba nkaccountsove rdr aftsove rd raft-calculator I Assuming the customer has chosen to opt-in to t he free text ale rt service

Halifax has an unplanned fee cap of pound100 per month which equates to 20 days at pound5 per day

overdraft from the worry of missing critical payments or the inability to complete a purchase at a critical time There are also financial benefits from avoiding missed payments and the missed payment penalties including withdrawal or cancellation of service which may result Customers are unable to use their unplanned overdrafts for ATM withdrawals standing orders or Faster Payments

In any given month approximately 7 of active customers will use an unplanned overdraft and on average for just two days The CMA found that 76 of customers did not use an unplanned overdraft at all over a year For customers using their unplanned overdraft for extended periods LBG caps the total number of days per month for which charges can be incurred

It is important to stress that overdrafts might not always be the most appropriate product for the customers needs and loans credit cards and other forms of credit might be better We have developed a Lending Pathways approach to help customers in branch choose the most appropriate form of credit for their needs This takes into account what the customer needs the money for how much they want to borrow and for how long

Summary of LBG initiatives to help customers manage their overdraft

LBG publishes all its overdraft rates and charges online We offer customers a range of tools to help them manage their overdraft usage These include

(a) The process to agree a new or revised limit is quick and simple so that customers are charged only for a planned overdraft Customers can do this online or via their mobile app

(b) Overdraft calculators to help customers work out how much they can expect to pay for overdraft use 3

(c) If a payment takes a customer into their unplanned overdraft they will receive an over-limit text alert4

(d) Customers have a grace period of up to midnight to pay in sufficient funds to avoid usage charges and up to 3 30pm to ensure any direct debit or cheque is paid

(e) If a customer only goes into their overdraft by less than a buffer amount (pound10 or pound50 depending on their PCA) then they will not incur any overdraft fees

(f) Balance Extra available with Halifax helps customers see their expected balance at the end of the month based on patterns of spending and scheduled payments

(g) Customers who are unable to pay in sufficient funds and remain in their unplanned overdraft are protected by fee caps Unplanned fees are capped at a certain number of days each month 8 days for Lloyds Bank and 20 days for Halifax5 bull

(h) LBG also offers a range of PCAs with interest and fee-free overdrafts For example Club Lloyds offers up to the first pound100 and Halifax Reward up to the first pound50 of a planned overdraft as interest-and fee-free Added value accounts offer larger interest and fee-free amounts

ht tpwwwlloydsbankcomcurrent middotaccountspersonal-overdraftsoverdraft-calculatorasp and

httpwww halif axco ukba nkaccountsove rdr aftsove rd raft-calculator I Assuming the customer has chosen to opt-in to t he free text ale rt service

Halifax has an unplanned fee cap of pound100 per month which equates to 20 days at pound5 per day

LBG identifies and helps customers in financial difficulty

We have a number of policies in place to identify when customers are using unplanned borrowing and are potentially entering into financial difficulties There are key thresholds at which LBG monitors customers for signs of financial distress and starts to help the customer through its Debt Management service Customers are no longer charged fees once they pass these thresholds

Customers can also proactively contact LBG if they are experiencing financial difficulties Once a customer has been identified for the Debt Management service LBG gets in touch with them to understand their circumstances and conducts an affordability assessment to determine an appropriate and sustainable treatment This may involve a repayment plan or refinancing among other options No customers are allowed further credit while they are in this process

We offer customers a Control Facility which is free for financially vulnerable customers for 6 months The Control Facility prevents customers from using an unplanned overdraft It is most suited to customers who regularly do not have enough available funds to make their payments and the safety feature of a Control Facility helps customers avoid unexpected charges for unplanned borrowing

CMA Retail Banking Investigation

The CMAs proposed remedies will make it easier for overdraft customers to shop around and switch PCA providers and provide customers with better tools to help them manage their overdraft usage The remedies include

(a) Requiring providers to share open data which will lead to new digital tools that will help customers to compare the cost of accounts easily based on their actual overdraft usage These tools will help overcome the problem of different approaches to charging

(b) Requiring providers to prompt customers to review how they use their account and compare the market with the prompts developed through trialling to test what is most effective This will help push customers into thinking about switching when they perhaps wouldnt otherwise

(c) Auto-enrolling all customers into overdraft text alerts so that all customers not just the most engaged benefit from account management tools We conducted a trial of our own to test the viability of this remedy and found opting-in customers to text alerts can save significant amounts in unplanned overdraft fees for some customer segments

(d) Requiring providers to cap the maximum monthly charge (MMC) for overdraft charges This will provide a visible price point that can help customers choose between products and providers

(e) Making it easier for customers to check that they can get an overdraft on the same terms with a new provider before they switch removing uncertainty for this group of customers and encouraging them to shop around and switch