Banks stand accused of `ripping off' customers

BANKS ARE fast taking over from supermarkets as public enemy number one, epitomised by yesterday's dispute over the decision by Barclays to charge rival customers for using its cash machines.

Earlier this month, the consumer magazine Which? tried to fan a "rip- off Britain" wave of outrage against the high street banks with a survey showing many products they try to arm-twist customers into buying offer poor value compared with what is on offer elsewhere. Customers are increasingly angry over the tendency of banks to impose charges out of the blue for services most people thought were free.

But Barclays' decision to impose a pounds 1 charge on customers of other banks who use its machines is part of a trend involving other big names such as Abbey National and the Halifax. If these banks succeed in making the charges stick, other banks will follow. As far as the Government is concerned, the Consumers' Association and other lobby groups pressing for a crackdown on banks are pushing at an open door.

Gordon Brown, the Chancellor, is convinced Britain's banks are failing the nation. Last year he persuaded Don Cruickshank, the independent-minded former telecoms watchdog, to head a committee of inquiry into the industry.

Ministers have already embarrassed the financial services industry over pensions mis-selling, and clashed publicly with banks over the reluctance to pass on interest rate cuts to homeowners. The Government is planning to give the Financial Services Authority, its new one-stop shop financial regulator, the power to police mortgage selling later this year.

Surprisingly, for an industry facing such a strong consumer backlash and the threat of heavy-duty government intervention, the banks seem so ready to shoot themselves in the foot. They claim they find themselves between a rock and a hard place. Competitive pressures have forced the banks to offer their customers "free" banking. But banks say "free" banking is as much of a myth as the proverbial free lunch.

Current or cheque book accounts, which is what most people want a bank for, are costly to run. For several years, banks have been trying to get around that by treating current accounts as a loss leader, which will get customers in the door. With a captive customer base banks hope they can "cross-sell" more profitable products including mortgages, insurance and pensions. Unfortunately, the public has refused to bite, not surprisingly given the poor value of most products the high street banks offer, in comparison with insurance companies and building societies.

New operators such as Standard Life, the insurance group, and the Prudential, through its Egg brand, are moving into the savings market once dominated by banks and stealing the more profitable customers.

Credit card companies are taking big bites out of the easy profits the likes of Barclays and NatWest have traditionally coined from the majority of us who do not pay off their credit cards in full every month. So the banks find other ways of recouping the cost of providing the basic bank account.

Peter Duffy, head of screen banking at Barclays, said he was taken aback by the charges dispute. Barclays was being honest about something other banks do through the back door. "We estimate the banking industry will make up to pounds 300m in hidden cash machine charges to unsuspecting consumers over the next year," he added.

NEW CHARGES

Barclays

From 1 October it will charge rival banks' customers who use its 3,200 machines pounds 1.

Abbey National

Since 2 August it has charged those paying a bill over the counter pounds 5; it charges a disloyalty fee of pounds 1.50 for customers who use dispensers from other banks except HSBC.

Halifax

From 1 November it will charge a pounds 1 disloyalty fee for customers who use other banks' machines;

from 1 February 2000, a pounds 10 charge for account holders who want cheques written by the bank to a third party.