Money News: A&L closes accounts of dissident customers

The battle between banks and customers over inflated overdraft charges turned still more acrimonious last week after it emerged that Alliance & Leicester was routinely closing the accounts of those taking legal action.

Where a customer has been prepared to take it to court over the size of the charges for unauthorised overdrafts, A&L's policy has been to settle the matter but then give the individual 30 days' notice of its intention to close the current account.

The grounds for this are that, by opening an account, the customer has entered a contractual agreement. If they don't abide by the terms of this, including all penalties, the bank says it has to close their account.

The decision to implement this policy had not been taken lightly, a spokesman said.

"However, where it is clear from a customer's actions that they don't accept certain aspects of the terms and conditions for operating their account, we believe that this is the only course of action we can take."

Under the terms of the UK's voluntary banking code, A&L is acting within its rights.

The bank's decision - one that has not yet been copied by its rivals on the high street - emerged in the middle of an industry storm over the size and legality of penalty charges.

A number of campaigns, including those by the consumer body Which? and bankchargeshell.co.uk, encourage consumers to challenge fees on unauthorised overdrafts, for example, and, if necessary, take the financial institution to court.

Last week, the Office of Fair Trading forced credit card lenders to slash the penalty for late or missed payments from £20 to £12. It is now expected to turn its fire on overdraft charges.

'Boiler rooms': Victims of scams lose £20,000

Victims of overseas "boiler room" scams are duped into losing an average of £20,000, the Financial Services Authority revealed last week.

The City regulator's first survey of the scams - in which illegal operations use high-pressure cold-calling tactics to sell shares that turn out to be virtually worthless - found, in three cases, that the individual loss was more than £100,000.

Those UK investors targeted are often older males, particularly in London and the South-east, whose names are usually culled from shareholder databases available from Companies House, the register of British companies. Mostly based overseas, the rogue outfits lie outside the jurisdiction of the FSA and so cannot be shut down by it.

The regulator had advertised for responses to a survey on the scams, and nearly two-thirds of consumers who replied said they had been pursued by a boiler-room set-up for at least one month. Nearly a quarter of victims received calls for at least six months.

Investors who fall prey to boiler rooms are unlikely to get their money back, the FSA said, as victims are not protected by the financial services industry's compensation and complaints schemes.

"If you get a call out of the blue, be wary and check with the FSA whether the firm is authorised," said a spokesman for the regulator.

Cost of borrowing: Rates pegged as housing slows

The Bank of England has held the cost of borrowing at 4.5 per cent for the 10th month in a row.

The base rate has not changed since last August, when it was lowered from 4.75 per cent.

The decision was widely expected given that the UK economy seems to be on an even keel, with slow growth counterbalanced by inflationary worries.

"The rate freeze was virtually a done deal - with the same expected [for] July," said Ray Boulger from broker John Charcol.

Meanwhile, the Halifax said monthly house prices crept ahead by just 0.1 per cent in May, as a mini-revival in the property market showed signs of running out of steam.

Credit cards: Lenders make half a billion extra

Credit card companies make £500m a year from consumers by using their repayments to clear cheaper debt first, according to new research from Nationwide building society.

Balance transfers and new purchases form different debts on a credit card, and most people pay these off at different rates.

But few providers settle the most expensive debt (usually the balance transfer) first. That, argues Nationwide, earns them half a billion pounds a year.

Four in 10 card users don't know that most providers allocate payments in this way, its research found, even though this information appears clearly in the accompanying literature for all credit cards.

Aside from Nationwide, HSBC is the only major card provider to allocate payments to the most expensive debt first.

Other lenders - including Barclaycard, Lloyds TSB and American Express - use customers' monthly repayments to pay off balances with the cheapest interest rate.

Nick White of the price- comparison website uSwitch.com said: "We recommend customers avoid falling into this trap in the first place. Never spend on the same card to which you've transferred a different balance."

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