Bank charges court case may not benefit majority

by Gill Montia

Story link: Bank charges court case may not benefit majority

This week marks the opening of a High Court case brought by the Office of Fair Trading (OFT) to establish the legality of the penalty charges made by High Street banks when customers exceed their overdraft limits or bounce cheques and direct debits.

Seven banks and one building society will defend the action, which could result in current account providers being forced to cap their fees.

A decision by the Court could take up to a year and in the meantime, the Financial Services Authority is allowing banks to continue to levy the charges.

At the same time, the regulator has issued a waiver that allows consumer complaints about excessive fees to be put to one side until the outcome of the proceedings.

So far, consumers are estimated to have reclaimed over £400 million in fees from their banks, and this amount could be just the tip of the iceberg, but according to Julian Skan, a senior executive from Accenture, the retail banking consultancy: “If banks are forced to reduce their charges for unauthorised overdrafts, for instance, then prices may well go up elsewhere. This risks increased charges for people who remain in credit and possibly a withdrawal of banking services from unprofitable poorer customers – exacerbating financial exclusion.”

Currently, the average cost to the consumer of running a typical UK current account is 70% lower than in most other Western countries.

The banks argue that the provision of cheques, cash machines and other everyday services is extremely costly and if they are forced to cap charges such “free” banking services will be under threat.

Recent research by Moneysupermarket.com shows that the “pay-as-you-go” charges found in many other countries would cost UK consumers an average of £300 a year.

In its survey the price comparison website also found that the majority of consumers would prefer to continue with the current system of “free” banking, which is subsidised by those who break the rules.

Only one per cent of people questioned would opt to pay a fee for every transaction made, and only 8% want monthly or annual fees.

Around 20% of current account holders use overdraft facilities and only 10% exceed their overdraft limits.