Lloyds Bank give basic account holders more ATM access

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Currently, holders of the Cash Account - the bank's most basic account, which is often held by those with debt problems in their past - can only use their debit cards to withdraw money from Lloyds Banking Group cash machines.

The network of ATMs owned by the banking group is large - all the machines outside Lloyds Bank, Halifax, Bank of Scotland and TSB branches for a start - but the rule still severely restricts the services available to some of the UK's most financially vulnerable people.

Such restrictions are far from unusual, however.

At the moment, only Barclays, the Co-op and HSBC allow their basic account holders to get cash from any ATM for free, just as standard account holders can.

Why restrict basic accounts?

Banks are required by law to offer basic accounts but are generally unwilling to offer their basic account holders a full service because they lose money on these overdraft free, fee free accounts.

Restricting ATM use is one way to recoup losses, banks say, since using a debit card with a ATM owned by another bank is slightly more expensive.

It also has the advantage of discouraging potential basic account holders from signing up at all, saving the bank even more money.

Banks and building societies take this same dual approach with many basic account services.

Nationwide and Santander, for example, often give their basic account holders a cash card, rather than a debit card that can be used to make payments in shops.

Although banks can't offer an overdraft facility with these accounts, many also impose returned item fees when a payment cannot be made.

Lloyds Bank turns the tide

Lloyds Bank's decision turns the tide, then, on basic services which have become increasingly hard to access over the past few years.

This matters because more attractive basic banking services help to stop financial exclusion by allowing those with debt problems in their past to get a step up into mainstream banking.

As Citizens Advice have highlighted in the past, banks are particularly likely to exclude those with a undischarged or even discharged bankruptcy.

In fact, since 2010 only Barclays have accepted applications from undischarged bankrupts.

Lack of access to basic accounts prevents people from making a fresh start.

It also leads many people to seek alternative accounts, like managed bank accounts, almost all of which charge fees.

More changes for Lloyds Bank accounts: no fees for sharia accounts

Lloyds Bank made their announcement about basic accounts alongside several other changes to accounts.

Most notably, the bank announced that holders of their sharia compliant current accounts will soon be able to go into their unplanned overdrafts for free.

Under sharia law, Muslims cannot hold any account which accrues interest but, currently, Lloyds Bank Islamic accounts do charge a monthly 'overdraft management fee' of £6.

From August that fee will be removed so overdrafts will become completely free.

As we've reported previously, great returns on savings and a lack of overdrafts on current accounts make sharia compliant accounts attractive even for non Muslim consumers, who are more than welcome to hold the accounts.

Non Muslims may also be attracted to the accounts for their ethics: to be sharia compliant, accounts cannot be funded by any practices which are considered haram (harmful).

Businesses involved in gambling, arms and tobacco production are all prohibited, for example.

The change to sharia compliant accounts has prompted an ugly response from some quarters.

For example, Christian Concern, a group which you may recall recently opposed gay marriage and a proposed bill banning 'gay conversion therapy', said that Lloyds Bank had "bowed to Islamic pressure to... create a two tier system."

As we look to banks to prevent financial exclusion of all kinds, this is chilling rhetoric.