Sam Dunn: Banks beaten, but they won't take it lying down

A fresh fight looms over penalties on other parts of our finances

Five of Britain's biggest credit card firms - Barclaycard, HSBC, Lloyds TSB, Halifax and MBNA - announced last week that they would slash penalty charges for late or missed payments (see page 18) after the Office of Fair Trading (OFT) threatened legal action.

And in the coming days, despite faint signals of brinkmanship, every other credit card provider is expected to fall into line.

The most telling part of last week's capitulation was that the quintet all stressed how much they "disagreed" with the OFT, but went ahead and did it anyway.

When they were asked why they had agreed to do so, despite their loathing for anything that curbs their profits, two reasons were offered. Barclaycard, MBNA, Halifax and Lloyds TSB insisted they wanted to "remove uncertainty and create clarity for customers", while HSBC had acted to "remain competitive" against the others.

This is nonsense. They all knew their charges wouldn't stand up under the glare of the court action threatened by the OFT and simply backed down.

But the face-off isn't over - far from it. Another, much more drawn-out confron- tation between banks and the watchdog looms over penalty charges that affect other parts of our personal finances - notably current accounts, store cards and mortgages.

The OFT says the same principle is at work here as with credit card penalties; they have been set at a level too high to be "legally fair".

The financial services industry is gearing up to counter this accusation and is expected to argue that these charges - especially for overdrafts - are different to those for credit cards since they relate to the "service" of an account rather than a "breach of contract".

What exactly the banks will say isn't clear yet, mainly because they are waiting to see what the OFT does next. But when banks start making fine distinctions instead of giving a straight answer on the principles of high penalties, it's a clear sign their cage has been rattled.

Just how lucrative some of the overdraft charges are can't be overstated. Financial analyst Moneyfacts reveals some of the most horrendous penalties are for unauthorised overdrafts; 29.8 per cent with Lloyds TSB and the Halifax, and 29.69 per cent at NatWest.

The OFT is keeping its powder dry. It wants to see how the rest of the credit card industry reacts on penalty fees before reaching for its guns - legal or otherwise - on current accounts et al.

Regardless, we should expect a shootout as the loss of yet more revenue from penalty charges would hit the financial services industry hard.

Indeed, the fightback has already begun. As Barclaycard unveiled its new, lower credit card penalty to the OFT, it added that it was to raise the annual percentage rates (APRs) on its credit cards by between two and five percentage points, - a move that will affect one in 10 Barclaycard holders.

This is, of course, no surprise: no lender is going to give up £8 per person on charges without trying to claw it back. And if it's not by means of higher APRs, it will be something else.

So extra vigilance will be needed from all of us, consumer watchdogs included, to make sure they can't make up their lost revenue through other products without us noticing - and acting accordingly.

Hell hath no fury like a bank scorned.

s.dunn@independent.co.uk