OFT Draws Bank Charge Battle Lines
The Office of Fair Trading has attacked banks in the UK for using 'stealth' and 'surprise' to boost profits via penalty fees. The OFT is about reveal the details of its legal case against banks in a legal dispute that consumers hope will rule many penalty charges levied by banks on overdrafts and other products as illegal.
Banks charge up to £38 a go for a bouncing cheque or going overdrawn, and a cut in charges would knock billions of pounds off their huge profits.
Big banks attempt to justify such charges by saying that they are part of a system that delivers 'free banking' to customers who keep their accounts in the positive.
Chief executive of the OFT, John Fingleton, disputes that banks provide free banking anyway. The watchdog says that banks effectively impose charges on banks accounts by paying little, or in some cases zero, interest on positive balances in current accounts. Yet, the banks invest money held in these accounts and make huge profits from the proceeds by doing so. High street banks also impose fees on overdrafts, loans, credit cards and other products which are unclear to consumers.
Mr Fingleton said: "We don't have free banking at the moment, as consumers pay for banking through surprises and through stealth. They don't see what they pay and very often they pay when an unexpected event happens like an unauthorised, unexpected overdraft."
The OFT CEO would like a shift in the way the UK pays for its banking, and sky-high fees should be scrapped.
Banks, however, have hit back by saying that they would introduce annual or monthly fees on accounts, and some are already doing so on accounts that offer other facilities beyond a normal current account.
The OFT say that banks gain money from plenty of other sources and should be able to bear the loss of income from high penalty charges.
Mr Fingleton would like to see an end to 'tricks', and that is why the OFT is taking legal action. He said: "What we hope to achieve by it is that very fundamental change in the behaviour of banks in the market place, so that they treat customers well, no tricks, no hidden extras, the pricing is fair and simple to understand. At the moment that's not the case."
He added: "I think the crucial question is whether the current charging structure the banks have is legal. If the court agrees with our position, then [it is] not. Then the banks are going to have to look at the charging structure for customers. We would like to see a much more transparent pro-consumer system of pricing and not a system that is funded on a basis of accidents that happen during the years on your account."
Overdraft charges currently net banks up to £3.5 billion a year, with as much as £2bn being profit. Banks have made it clear that they do not intend to forfeit this easy income without a fight. So far, dirty tactics have included attempts to prevent many thousands of customers from using courts to reclaim overdraft penalty charges, deliberately extending the complaints process, holding information back and closing down accounts of customers making claims.
Published on November 20, 2007
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