Consumers could win the battle on fees, but will they lose the war?
As a High Court case begins on charges, Kate Hughes finds that we could pay if the banks are defeated
Sunday 13 January 2008
The war between consumers and banks over charges is set to take another twist this week.
In the High Court, the Office of Fair Trading (OFT) and seven banks and one building society will contest whether the scale of the fees levied on customers for going into unauthorised overdraft or for bouncing a cheque is legal. If the OFT wins, it could result in current account providers having to cap their fees, as credit card companies have been forced to do on penalties for missing a repayment.
Both sides speak about the case offering welcome clarification of consumer law, but while we wait for a decision– and that wait could last for the rest of the year – banks continue to levy their fees while being allowed by the Financial Services Authority (FSA) to put customer complaints on ice.
Up to this point, consumers have reclaimed more than £19m in fees from their banks, and that may just be the tip of the iceberg as this represents the amount paid to members of the anti-charges campaign organisation, the Consumer Action Group.
If the High Court does rule in favour of the OFT, it could backfire on customers. "If banks are forced to reduce their charges for unauthorised overdrafts, for instance, then prices may well go up elsewhere," says Julian Skan, a senior executive from the retail banking practice of consultants Accenture. "This risks increased charges for people who remain in credit and possibly a withdrawal of banking services from unprofitable poorer customers – exacerbating financial exclusion."
At the moment, UK consumers fare comparatively well. The cost to the individual of running a typical current account is, on average, 70 per cent lower than in most other Western countries. British banks allow us to use heavily unprofitable services such as cheques and free cash machines, which many other nations have removed or reduced. "The UK's clearing banks are also investing hugely over the next year in enabling customers to transfer money from one bank to another almost instantly," adds Mr Skan. If the court rules for the OFT, fees for everyday services could be the new reality – the end of "free banking".
In fact, some providers are already turning their backs on this concept with charges for less profitable customers. HSBC and First Direct, for example, have introduced a £10 monthly fee on some accounts.
"At the moment, free banking is only possible because of the number of people who are hit with fees and charges," says Kevin Mountford at comparison site Moneysupermarket. com. "The OFT's clampdown on this, along with calls for more transparency in charging, could well be moving us closer to a pay-per-transaction system – but one Britons will resist."
All this said, perhaps the intense competition in the market will persuade some banks to resist extra charges in the hope that customers will abandon fee-laden accounts in favour of them.
Alliance & Leicester, for example, has simplified its charging structure. Instead of imposing fee and interest penalties if a customer goes over their overdraft limit, it applies an overdraft usage fee of 50p per day capped at £5, and a £5 fee if customers break their limit.
Research by Moneysupermarket.com shows consumers would reject fee- paying current accounts and switch to alternatives. The research found that the "pay as you go" charges favoured in many other countries would cost UK consumers an average of almost £300 a year. As a result, only 1 per cent would choose to pay a fee for every transaction made, and only 8 per cent want upfront monthly or annual fees. The most popular option is to continue with the current system of free banking, with charges for rule breakers. Only 20 per cent of us use overdraft facilities on our current accounts, and only half that figure have run into unarranged borrowing.
But do we really have free banking anyway? Consumer groups claim banks earn money through delaying payments and transfers and play with that cash on the money markets. British banks have the capacity to make these transfers at the click of a button, but consumers are still faced with waiting three to five working days.
Meanwhile, current accounts often offer very low rates of interest – less than 0.5 per cent is the norm and rates as low as 0.1 per cent are common. "Free banking," says Mr Mountford, "is already no more than a myth."
Compare with the Independent: See how much you could save by switching credit cards. Compare now
Ukraine crisis is Russian roulette for investors
Make money as a mystery shopper
Investment Insider: Poundland may not be cheap when it floats
How to start your own internet business
The whole truth about legal fees: Conveyancing can knock a big hole in home-buyers' finances. To get the best deal you must cross-examine solicitors about their charges, says Sue Fieldman
- 1 Bad cattitude: Family call police after crazed and 'hostile cat with a history of violence' attacks baby before attempting to 'flee custody'
- 2 Family forced to flee home after discovering 'terrifying' nest of spiders in bananas
- 3 First Kiss: Filmmaker gets 20 strangers to make out on YouTube with awkward results
- 4 Grace Dent: Who cares if she spells it Barraco Barner? Gemma Worrall is more employable than some bookish arts graduate
- 5 Bob Crow death: 'Admired by his members, feared by employers' - Tributes pour in for RMT union leader and 'working class hero' Bob Crow
Britain's top vet sparks controversy with call for ban on slashing animals' throats in 'ritual' slaughters for halal and kosher meat products
Poor 'live like animals' says Boris's privately educated sister after going on 'poverty safari'
Exclusive: Impact of immigrants on British workers ‘negligible’
Vince Cable: Teachers 'know absolutely nothing' about the world of work
Ukraine crisis: Russia pledges to 'retaliate against sanctions' as Ukrainian president says Crimea vote will not be recognised
The quiet diplomat: Catherine Ashton - recognised and admired in all the world’s troubled countries, yet ridiculed at home
iJobs Money & Business
£1000 per month: Inspiring Interns: The company works with Tier 1 FTSE 100 Ban...
£35000 - £60000 per annum + Bonus + Benefits: Pro-Recruitment Group: You must ...
£60000 - £80000 per annum + BONUS + BENEFITS: Harrington Starr: A top, City ba...
VOLUNTARY ONLY - EXPENSES REIMBURSED : Reach Volunteering: Fantastic opportuni...
Day In a Page
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village
A secluded seven-bedroom detached house with large private garden, £490,000
A three-bedroom cottage overlooking Sarratt village green with open fires and solid oak floors
A three-bedroom maisonette flat in a Grade I-listed, Georgian townhouse in a sought-after location
A one-bedroom apartment located within a private gated development, north of Turnham Green
Look forward to a brighter future at two-bedroom Sunny Cottages, ideal for Londoners looking to downsize
A three-bedroom red-brick cottage with outbuildings and pretty gardens, £200,000
This three-bedroom flat within a former textile factory spans the corner of the fourth floor and has a balcony
A charming four-bedroom Oxfordshire cottage with oak floors and chunky-beamed ceilings, £465,000
A beautiful one-bed flat in a sought-after portered block, with access to Norland Square communal gardens
A one-bedroom flat within a Sixties school conversion with high-spec design and open-plan kitchen, close to Lambeth North Tube, £435,000
A 17th century four-bedroom house, with open fireplaces, cellar and pool, £600,000
A three-bedroom, coach house with luxury open-plan living space and contemporary breakfast bar
A newly refurbished one-bedroom flat in the heart of Mayfair, close to Grosvenor Square
A charming four-bedroom house overlooking Burleigh Square Park, close to Thorpe Bay
A three-bedroom farmhouse with a large inglenook fireplace and exposed beams
A boutique mews house, set around a central courtyard, with three bedrooms and a private roof terrace
A four-bedroom farm-conversion with three bathrooms and two reception rooms
A two-bedroom detached house with ensuite bathrooms and a sun-drenched decked terrace, £750,000
A modern and spacious two-bedroom, penthouse flat with two bathrooms in a prestigious development
A beautifully renovated five-bedroom terrace with three reception rooms and a courtyard garden, £700,000
A four-bedroom period house which has been extended to provide almost 2,500sq ft of living space, £675,000
A pretty three-bedroom Georgian home with a 22ft drawing room and a master suite with a balcony, £525,000
A substanstial family home with five bedrooms and landscaped gardens in the much sought-after Branksome Park area
A well-presented three-bedroom house with front and rear gardens, close to White City station, £475,000
A handsome five-bedroom house in a sought-after location close to the city centre
A five-bedroom country home with valley views, equestrian stables and 27 acres of land, £725,000
A six-bedroom farm house with separate, detached cottages and 371 acres of land
A two-bedroom cottage with parquet floors, chunky beams and an open fireplace
A three-bedrrom flat with 2,733sq feet of living space, a beautiful private garden and 15 acres of communal grounds
A four-bedroom chalet bungalow with three bathrooms and a spacious garden, £525,000
A two-bedroom flat with an open plan kitchen and two balconies, close to Arsenal station
A Grade II-listed home with six bedrooms, secluded landscaped gardens and views across Hadley Green
A Grade II-listed mansion with two apartments and a cottage, near Gretna Green
A three-bedroom Grade II-listed mews house with vaulted ceilings and roof garden
A spacious Grade II-listed family home with annexe and equestrian facilities among four acres of land in Itchingfield
A four-bedroom home with exposed brick walls and open fires in the picturesque village of Northill