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."