Regulator to investigate bank charges on overdrafts

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The Office of Fair Trading turned its fire on the current-account market yesterday, launching an investigation into the fees which banks levy for going overdrawn, with a view to forcing them to slash their charges next year.

The inquiry comes weeks after the OFT ruled that credit card companies should charge no more than £12 to customers who miss a payment. Although the regulator stopped short of making the cap mandatory, all major credit card companies have since complied with the decision.

The OFT said yesterday it would publish the results of its latest investigation towards the end of the year, or in early 2007, including a recommendation for the maximum amount banks should charge customers for slipping over their agreed overdraft limit.

"The reduction of default charges on credit cards is great news for consumers," John Fingleton, the OFT's chief executive, said. "By taking an innovative approach to this issue, the OFT has brought about a significant change in one area of the financial services sector. We are now extending that work to inform ourselves about account default charges."

The British Bankers' Association said it disagreed with the OFT's move to pressure banks into reducing charges, claiming the UK was one of the most competitive retail banking markets in the world. Ian Mullen, the BBA's chief executive, said: "Unlike in other countries, where customers pay both to have a bank account and for the services they use, UK banks provide free banking, including access to free debit cards, free access to ATMs, free use of cheques, free use of direct debits, free internet banking, free telephone banking and the provision of free paper statements."

Consumer groups welcomed the investigation, saying banks should be forced to make charges proportionate. Emma Bandey, of Which?, said: "Which? has long asked banks to open their books to public scrutiny as we feel that default charges should be proportionate and reflect the administration costs involved. They should not be, as they are now, arbitrary figures picked to make the most money out of unsuspecting customers."

Elsewhere, the Department of Trade & Industry said yesterday it was launching a crackdown on credit card cheques, but stopped short of imposing a full ban on unsolicited cheques, as some consumer groups have called for. Credit card companies will be forced to provide better levels of information about credit card cheques.

Stephen Hone, 29, law student: 'I took Abbey to court and won'

Stephen Hone, a law student from Plymouth, won £5,000 compensation from Abbey after taking the bank to court over two £35 charges he incurred when direct debits due to be paid from his account bounced.

He told a court the charges breached the 1999 Consumer Contracts Regulations, because they were much greater than the costs Abbey would have incurred when dealing with the problem.

"The money may not seem a big deal to Abbey, but when it charged me £70, the only earnings I had to support my children were £70 a week from a part-time job," Mr Hone said. Abbey offered Mr Hone a £5,000 out-of-court settlement. "These charges hit people living on the breadline," Mr Hone said. "I felt it was important to take a stand, and the fact Abbey caved in, despite all the legal facilities it has, proved I was in the right."