OFT in talks with banks over reducing charges
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Independent Minds
Talks between high street banks and the Office of Fair Trading (OFT) on lowering the £2.6bn unauthorised borrowing charges on current accounts could lead to a breakthrough in months, it was revealed today.
The OFT announced the talks as it confirmed it would abandon its two-and-a-half year legal battle against six banks and one building society over the fees following a defeat at the Supreme Court last month.
The OFT, which pointed out the Government had threatened to legislate unless the banks changed their fees, said it hoped to report back on its progress in March.
Separately it said that it might still be possible for individuals to launch legal actions for refunds of fees of up to £35 charged for borrowing money without permission.
Having studied the Supreme Court ruling on November 25, the OFT said it believed any future action under the 1974 Consumer Credit Act – rather than the 1999 Unfair Terms in Consumer Contracts Regulations, which it had previously used – was likely to fail.
However it expressed ongoing “significant concerns” about the personal current account market, and planned to discuss a range of options from voluntary measures to legislative change with banks and consumer groups.
Current account customers who go into unauthorised overdraft or breach their agreed limit can be charged as much as £35 for a single bounced payment, although campaigners claim the actual cost to the banks could be as low as £2.50.
Banks earn around a third of their £8bn revenues for personal current account from the charges, which the OFT complained were “difficult to understand, not transparent and not subject to effective consumer control”.
“We remain deeply concerned that the market for personal current accounts is not working well for consumers and does not give banks sufficient incentives to compete,” said John Fingleton, the OFT’s chief executive.
“We are committed to securing significant changes to unarranged overdraft charges going forward, whether through voluntary agreement with the banks or by other means.”
The watchdog stressed that its decision “should not be treated as advice” to customers considering bringing an individual action against financial providers under the Consumer Credit Act, which would be decided on the particular facts in each case.
The British Bankers’ Association welcomed the OFT’s decision. “The banks understand customers' concerns, and talk to their customers regularly and develop accounts in line with feedback,” the BBA said, adding that it would enter talks with the OFT.
It defended the current account market as “competitive and dynamic.”
The end of the test case means one million claims for refunds currently with the banks will be rejected and scuppers the prospect of automatic payouts of billions of pounds for nine million customers who have paid the charges since 2001.
Philip Cullum, acting chief executive of Consumer Focus, said: “This decision will add to the public frustration towards the banking sector. Banks must realise that consumer confidence in the sector is incredibly weak and that real changes are needed.”
The Liberal Democrat leader Nick Clegg described the ruling as “extremely disappointing.” “Having come so close to overhauling an unfair system of charging that penalises vulnerable groups of people, I know that the campaign will not just stop. The Liberal Democrats will continue the fight for fair bank charges in Parliament and push for a change in the law if necessary so that high street banks cannot keep ripping off their customers.”
Which? chief executive Peter Vicary-Smith said: “Consumers have been left confused by this decision. It looks like the big refund war is over but there is a narrow possibility that some people might be able to claim back their bank charges. The situation needs clarification and we’re looking into it as a matter of urgency.
He advised people to sit tight and avoid claims handlers, who charge a fee for doing something consumers could do themselves.
During the bank charge revolt, which was championed by The Independent, customers received an estimated £1bn in goodwill payments. Many banks have also lowered their fees, though they have sought to introduce more charges for running current accounts, threatening the end of ‘free banking’ for those in credit.
Martin Lewis, of Moneysavingexpert, said it had been the most successful campaign since the Poll Tax riots in 1990. He said: “We have seen £1bn paid back and many banks – but not all, sadly – have lowered their charges. We have seen people realise that bank managers are not people in bowler hats there to help them but are there to make money from them, and put all three together and it’s been a very successful campaign.”
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Comments
they seem to be above the law at least for the time being until the next french revolution.
I'll ask again. Why are the banks not refusing outright to fund unauthorised overdrafts? Most current accounts already have an agreed authorised overdraft limit so the account holder is already being allowed to be profligate.
I listened to a discussion this morning on Radio4 Today and once again heard a spokesman for some unelected pressure group state that it was the poorest in society who would suffer because of this decision. Not what I've found when talking to people. Firstly, the very poorest don't have bank accounts. Secondly, if they have an account the poorer in society are ultra careful in what they spend.
The people who are the main recipients of the charges are those who believe they have the "right" to have everything they want immediately. Well if they want to spend what they haven't got they deserve to get stung with high charges.
The reality is that the charges for unauthorised overdrafts are actually a financial penalty for breach of the contract between the customer and the bank (the clue is in the word "unauthorised"). Since contract penalties are illegal in English law, most customers who challenged these penalties in the small claims court were winning their cases because the Banks would not (or could not) prove that they had incurred a financial loss of £35 for this breach of contract.
It appears that process was working fine and thousands were getting refunds from the banks.
Then the OFT, the people paid for by the tax payer (and bank customers) to protect their interests, finally woke up to the fact that individuals were succesfully doing their job for them and got involved.
The fact that they messed up the court case has already been reported.
This news story here is that the OFT have taken a situation where indivduals were happily getting repaid by the banks and now have little chance of gaining any recompense.
So who benefited from the OFT intervention, the ordinary tax payer, who they should represent or the Banks?
Martin Lewis, MoneySavingExpert.com
"The OFT told me this morning they looked at taking the case forward under the Consumer Credit Act.
But because it is about the relationship between individual and lender, it felt it was not appropriate to take it on as it thought individuals taking action would have a greater chance of success."
So doing it alone may still work, maybe..I think the OFT took a different route which the court said they did not really have the power to follow. So they messed up from the beginning. They also "messed up" the "beer tie" investigation.
"After a 90-day investigation the OFT decided the beer tie did not have a detrimental impact on pub customers and declined to take any further action."
How can that be? A Select committee said, "The report explicitly acknowledges that “not all the problems of the pub industry come from the tied pub model. It is clear there are many pressures on any retail business, and pubs are challenged by changing consumer preferences, changes in the regulatory framework and general economic circumstances. Nonetheless, our inquiry found alarming evidence indicating there may be serious problems caused by the dominance of the large pub companies."
I think the real truth is that large companies have more say than the voters. Getting screwed is fine if someone is making a profit out of it :(