James Daley: Be careful what charges you wish for
Saturday 26 April 2008
The popping of champagne corks on Thursday – when the Office of Fair Trading (OFT) won its court case against the banks – was more than a little premature. While the result does, indeed, open the door for an OFT clampdown on bank charges, it is improbable that anything will happen in 2008, and there is no guarantee that there will be a resolution even before the end of 2009.
For a start, the banks are sure to launch appeals against Thursday's ruling – firstly in the Court of Appeal and then in the House of Lords. The case is too important for them to accept this week's decision – and whichever way the first appeal goes, both sides will want a final and definitive verdict from the House of Lords. All that will take time.
Furthermore, Thursday's verdict only brought stage one of a two-part case to a close. Now that the court has ruled that the banks' charges are bound by the Unfair Terms in Consumer Contracts Regulations 1999, it has to start all over again to decide whether or not the charges are actually unfair.
It's also worth noting that Thursday was not a complete washout for the banks. The judge in the case ruled that their charges could not be deemed to be a "penalty", which may prove to be crucial in the second half.
Although I have some sympathy with the hundreds – perhaps thousands – of consumers who are being forced to wait for a resolution to their claims for unfair bank charges (the Financial Services Authority has put a waiver in place until the test case is resolved), people may want to be careful what they wish for when it comes to the final verdict in this case.
If the OFT wins the right to cap the charges of UK banks, consumers will only end up paying elsewhere. For the moment, the British are spoilt when it comes to banking. Many services that cost real money in other countries are free to us over here. The only cost to us is the cost of accepting a low rate of interest on our current accounts. And even then, there's no longer any reason to accept this penalty. The market has become so competitive these days, that it's possible to get a good rate of interest and get all your other banking services for free.
Admittedly, the charges for busting your overdraft limit – or having a cheque bounced – are still very high. But if these are capped, banks will be forced to up charges in other areas of their business.
Already mortgage fees have soared in recent years, while credit card fees and interest rates have also been on the rise.
It's much like the airlines. As their costs have increased, they've been forced to try to recoup some revenue elsewhere. But the airfare market is so price-elastic that they can't simply put up their prices. Instead, they're lowering the maximum weight of your bags – so that more people are forced to pay excess luggage. They're charging for alcoholic drinks, and they're penalising those who don't check in online. All told, customers might end up paying 20 per cent more than they paid for their ticket – and would probably have been better off choosing a slightly more expensive airline that doesn't skimp on the service.
Be it the banks or airlines, this kind of pricing is only making it harder for consumers to know when they're getting a good deal. Personally, I'd rather pay £10 a month to my bank in return for an honest and good-value service. But the British aversion to straightforward charges means it's far more likely that the smoke and mirrors game will prevail.
Read the Independent's Cash Crusader blog here
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