Leading article: The case for punitive bank charges is weaker than ever

The financial crisis has shown how we taxpayers underwrite the banks

Related Topics

When this newspaper began its campaign against excessive bank charges in February 2007 the financial world was a very different place. It was before the credit crunch; before the nationalisation of Northern Rock; before the unprecedented state bailouts of some of the most famous banking names on our high streets. In those carefree days, few of us had heard of sub-prime mortgages or collateralised debt obligations.

When The Independent began to encourage bank customers to demand that these charges be refunded, the likes of Lloyds TSB, the Royal Bank of Scotland and HBOS made billions of pounds in profits each year. Now all that stands between these banks and insolvency is the hand of the state.

Yet, despite this traumatic humbling, the banks continue to fight for their right to levy these charges, bringing their case before the House of Lords yesterday. Over the coming days, five Law Lords will rule on whether the Office of Fair Trading has the authority to decide if these charges are fair or not.

Should the fact that the high street banks have been brought low have any bearing on the outcome of this case? Expect the banks and their defenders to argue that it does. They will claim that removing this income stream (which before 2007 yielded the sector some £2.5bn a year) will hasten the end of "free" banking in the UK.

We can predict this because this is the tune the banks have been playing since this saga began. The alternative to allowing the banks to impose hefty penalties is, we are told, monthly account fees for all, of the sort that are levied on the Continent.

We should not allow such threats to be a distraction from what has always been the central issue. The basic objection to these charges is not that they make the banks too much money, but that they are unlawful. The law, as outlined in the 1999 Unfair Terms in Consumer Contracts Act, says that banks cannot impose charges for services that are in excess of what it costs them to provide those services.

But the level of these charges is not set to cover the costs to the banks of unauthorised overdrafts and the like. It does not, for instance, cost a bank £40 every time one of their customers goes unexpectedly overdrawn. Independent analyses suggest the true cost is less than a tenth of this. These are penalty charges and, as such, they are breaking the law.

The question of the banks' revenues is another matter entirely. If the banks want to impose account fees to maintain their profit margins, let them make the case for this on its own merits. It is, though, hard to see them getting a receptive hearing from their customers in the present climate.

The banking crisis, far from supporting the case for bank charges, emphasises the extent to which the financial sectors enjoy an implicit guarantee from the state when it overreaches itself. Commercial banks have a tendency to privatise profits in the good times and socialise losses in the bad.

Given the implicit – and, at the moment, explicit – state guarantee the banks enjoy, the case for allowing them to levy punitive charges looks weaker than ever. It is bad enough to be gouged by a private company. But coming from businesses that we - as taxpayers - are required to support, it is surely an insult too far.

React Now

Latest stories from i100
iJobs Job Widget
iJobs General

Volunteer Trustee opportunities now available at The Society for Experimental Biology

Unpaid Voluntary Position : Reach Volunteering: Volunteer your expertise as Tr...

Early Years Educator

£68 - £73 per day + Competitive rates of pay based on experience: Randstad Edu...

Nursery Nurse

£69 - £73 per day + Competitive London rates of pay: Randstad Education Group:...

Primary KS1 NQTs required in Lambeth

£117 - £157 per day + Competitive London rates: Randstad Education Group: * Pr...

Day In a Page

Read Next
F D R and Eleanor, both facing camera, in Warm Springs, Georgia in 1938  

Where are today's Roosevelts?

Rupert Cornwell

Now back to the big question: what's wrong with the eurozone?

Hamish McRae
Scottish referendum: The Yes vote was the love that dared speak its name, but it was not to be

Despite the result, this is the end of the status quo

Boyd Tonkin on the fall-out from the Scottish referendum
Manolo Blahnik: The high priest of heels talks flats, Englishness, and why he loves Mary Beard

Manolo Blahnik: Flats, Englishness, and Mary Beard

The shoe designer who has been dubbed 'the patron saint of the stiletto'
The Beatles biographer reveals exclusive original manuscripts of some of the best pop songs ever written

Scrambled eggs and LSD

Behind The Beatles' lyrics - thanks to Hunter Davis's original manuscript copies
'Normcore' fashion: Blending in is the new standing out in latest catwalk non-trend

'Normcore': Blending in is the new standing out

Just when fashion was in grave danger of running out of trends, it only went and invented the non-trend. Rebecca Gonsalves investigates
Dance’s new leading ladies fight back: How female vocalists are now writing their own hits

New leading ladies of dance fight back

How female vocalists are now writing their own hits
Mystery of the Ground Zero wedding photo

A shot in the dark

Mystery of the wedding photo from Ground Zero
His life, the universe and everything

His life, the universe and everything

New biography sheds light on comic genius of Douglas Adams
Save us from small screen superheroes

Save us from small screen superheroes

Shows like Agents of S.H.I.E.L.D are little more than marketing tools
Reach for the skies

Reach for the skies

From pools to football pitches, rooftop living is looking up
These are the 12 best hotel spas in the UK

12 best hotel spas in the UK

Some hotels go all out on facilities; others stand out for the sheer quality of treatments
These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

Widespread fear of Isis is producing strange bedfellows

Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
Topshop goes part Athena poster, part last spring Prada

Topshop goes part Athena poster, part last spring Prada

Shoppers don't come to Topshop for the unique
How to make a Lego masterpiece

How to make a Lego masterpiece

Toy breaks out of the nursery and heads for the gallery
Meet the ‘Endies’ – city dwellers who are too poor to have fun

Meet the ‘Endies’ – city dwellers who are too poor to have fun

Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

Ian Paisley’s decision to make peace with his IRA enemies

His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam