Banks in £4.7bn charging bonanza

Britain's biggest banks earned £4.7bn from unauthorised overdraft charges last year, according to a study published today by Which?. The consumer group accused current account providers of illegally boosting profits by charging customers exorbitant fees for breaching their overdraft limits.

The research comes on the final day of a consultation between the Office of Fair Trading and leading banks over the penalty charges they should levy.

Doug Taylor, Which?'s campaign team leader, said: "It is time for current account providers to do the decent thing and cut their charges. If they do not, regulators must take action."

The study looked at charges paid by more than 2,200 current account customers in 2005. It concluded unauthorised overdraft fees cost the average account holder £120 in that year.

As well as a penalty charge of £20 to £30, which can be applied every day that a customer remains over the limit, most banks often levy fees for cheques that bounce and for unpaid direct debits and standing orders. Halifax charges £30 every time a customer tries to process a transaction for which he or she does not have the money.

Last month, an OFT investigation concluded charges of this size were illegal because consumer protection law prevents organisations from making a profit on penalty fees. The OFT told credit card lenders the maximum penalty charge they could legally apply was £12. It is expected to announce a crackdown on unauthorised overdraft charges early next month.