Changes to Lloyds Banking Group’s overdraft charges have been criticised by Labour MP Rachel Reeves ahead of the Financial Conduct Authority’s (FCA) proposed crackdown later in the year.
Reeves said the fees – which will equate to an annual interest charge of up to 61 percent – are "unacceptable".
The FCA is planning to scrap overdraft fees and replace them with a single interest rate.
Lloyds said in a statement: “We welcome the FCA’s move to simplify the structure of overdrafts and the cost of unarranged overdrafts – our recent changes to planned overdrafts were announced prior to the FCA’s latest recommendations.
“We were the first major bank to remove charges for unarranged overdrafts and returned item fees and our overdraft charges are proportionate to what is actually borrowed, making it easier for customers to understand the total costs involved.”
Under Lloyds’ new fees structure, rather than paying 1p every day for every £7 of overdraft used, the cost for the first £1,250 borrowed will increase to 1p a day per £6. It equates to a rate of 61 percent.
The cost for borrowing between £1,250 and £2,500 remains at 1p a day per £7, while borrowing more than that will be charged at 1p a day per £8.
Reeves, who chairs the Business, Energy and Industrial Strategy select committee, said: "While these fees might be legal, they are not within the spirit of the FCA’s recommendations. It is unacceptable for financial institutions to try to game the system at the expense of customers, particularly those struggling with their finances."
Under the FCA plans, banks will charge one fee for all overdrafts, which customers would be able to compare between banks.
The watchdog has also proposed a ban on any fixed fees linked to an overdraft.