BBC Radio 4's Money Box
Changes apply to Classic Current Account customers
Lloyds TSB has written to up to six million customers who have a Classic current account warning them that a penalty of £30 will be triggered if they go even a penny overdrawn.
Previously customers were allowed a £10 buffer zone before the penalty was triggered.
A charge of £35 will apply every time a cheque or direct debit is bounced.
The bank also warned customers it would no longer waive the charge for those who offended for the first time in twelve months.
Lloyds TSB promised that customers who had more than three payments bounced in a day would be charged no more than three times - a total of up to £105.
Radio 4's Money box programme was told by Bob Egerton of campaigning group Bank Charges Hell that the new penalty regime, which begins on November 1st, was designed to raise money before the Office of Fair trading ruled on bank charges early next year.
"It's a cynical move to pre-empt what they see as a downturn in their income in the next 18 months. The problem is for people on low incomes. I've seen many cases of people suffering from these default charges that have snowballed. To them it is the difference between having money on a Saturday and not having any money."
Charges are avoidable
That charge was denied by the man in charge of the new policy, Lloyds' Head of Transactional Banking.
"We're not picking on anyone. At some point we have to draw a line whether its 1p or ten pounds. The most important part to note is that these charges are totally avoidable. It's never been easier for customers to get access to an overdraft facility with us either through our branches, online or through our call centres."
He said that customers in difficulties should contact the bank.
"We are happy to have a conversation with customers who want an overdraft facility to avoid these charges. We're always taking a look at the features of our accounts and have made a number of changes this year and not all negatively"
He went on to justify the charge of £35 for bouncing a payment.
"There are a number of decisions that the bank has to undertake in terms of choosing whether to decide whether to extend credit when the bank doesn't have an overdraft facility with us or whether to bounce the cheque."
However, he would not confirm or deny whether the new charge fulfilled the conditions for penalty charges laid down by the Office of Fair Trading. Lynn Parker, head of investigations into current accounts at the OFT, told Money Box last month "Banks are entitled to charge what it costs them when somebody defaults, and that would be limited to certain administrative costs but they're not allowed to profit from those default charges."
But when asked this week if the £35 charge for bouncing a payment was what it actually cost the bank, Gerrard Schmid, Head of Transactional Banking at Lloyds TSB, refused to answer.
Asked if it reflected the costs 'yes or no' he sat in silence and the interview came to an end.
BBC Radio 4's Money Box was broadcast on Saturday 7 October 2006, at 1204 BST and will be repeated on Sunday, 8 October at 2102 BST.