en-us http://backend.userland.com/rss Your Friends @ Myvesta.org.uk (stever@myvesta.org) myvestaukblog_archive.html stever@myvesta.org 115816015947701375 Highstreet banks face the loss of billions of pounds after the OFT launched an inquiry into the fees charged to consumers on current accounts.

The Office of Fair Trading (OFT) is to examine the banks’ £4.7 billion annual income from the default charges that are applied when customers slip into the red or miss direct-debit payments. The move comes after the OFT forced banks to lower charges applied to borrowers who default on credit card payments by introducing a £12 limit last April.

The OFT believes that, as with credit card charges, fees applied to current accounts should reflect the administrative cost borne by the bank. Holders of current accounts can be hit by charges as high as £30 a day for exceeding their overdrafts. Charges for unpaid direct debits or standing orders are higher, at up to £39 for each item.

The banking industry defended its system. Ian Mullen, chief executive of the British Bankers’ Association (BBA), said: “Our members remain of the view that the current-account charging system is fair and legal. The majority of customers do not pay fees and enjoy free in-credit banking, unlike the vast majority of developed economies.”

Yet there are signs that the resolve of banks is beginning to crack. After several high-profile public awareness campaigns from organisations such as Which?, the consumer group, many banks have offered settlements, in some cases for thousands of pounds, to disgruntled account holders.

Emma Bandey, of Which?, said: “We have long since 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.” Overdraft charges and interest rates have long been an important source of revenue for banks and building societies, netting them about £10 billion a year, according to the BBA.

If the OFT sets a limit of £10 on charges, the industry stands to lose an estimated £1.2 billion a year, according to Credit Suisse, the investment bank. If they are scrapped altogether, the lost revenue could approach £5 billion, Which? estimates.

Some banks are attempting to stem their losses. Lloyds TSB, NatWest and Smile all increased their overdraft interest rates by up to 2 per cent on September 1.

Nick White, of uSwitch.com, the price comparison website, said: “The new overdraft rates are a signal that the industry is looking to stay one step ahead of the game.”

The banks expected an investigation into current accounts after the OFT’s ruling on credit card charges. The OFT will report its initial findings in three to six months.

The Times
September 8th, 2006

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