Repaid charges could cost HBOS £50m

by Gill Montia

Story link: Repaid charges could cost HBOS £50m

Credit Suisse has published a study in which it estimates that UK banks paid out £200m in the first-half of 2007, to customers reclaiming unfair bank charges.

Account holders have been successful in reclaiming thousands of pounds in penalty charges that have been deemed unfair under consumer contract law because they do not reflect the costs incurred by the account provider.

Some banks have been charging up to £35 when a customer goes overdrawn without permission, whilst the true cost of such an incident to the bank would be between £2 and £5.

So far banks have not disclosed how much they have repaid in charges, but when first-half results are reported in July, some are expected to reveal the figures.

Credit Suisse believes that in the case of major banking groups, the costs involved could reduce profit by around 1%.

Earlier this year there were reports of 500 claims per day arriving at some banks, and extra staff were being employed to deal with the situation.

Barclays and HBOS, which incorporates Halifax and Bank of Scotland, have already acknowledged that the repayments will impact on profit.

HBOS is dealing with the matter by separating the costs incurred from its earnings and according to Credit Suisse, reclaimed charges could cost the group £50m.

The Office of Fair Trading is currently investigating bank charges and is looking in particular at concerns that moves to bring an end to high penalty charges could lead banks to stop offering free banking, which the banking sector maintains has been subsidised by the system of high penalty charges.