The waiver first came into place in July last year when a court case began between the Office of Fair Trading (OFT) and eight financial institutions over whether or not unauthorised borrowing charges are fair. These are the fees that are levied if you go overdrawn or exceed an agreed overdraft limit without permission, have a cheque bounced or direct debit or standing order declined.
The FSA's original waiver was for 12 months, but with the court battle ongoing a second waiver has been implemented.
What is taking so long?
In April, the judge, Mr Justice Andrew Smith, ruled that the OFT can apply consumer contract regulations to decide whether or not overdraft charges are fair.
This was a green light for the OFT but the banks decided to appeal. In a report published two weeks ago, the OFT claimed high street banks make more than £8bn a year from current accounts that are too complex and that 'are not working well' for consumers. It pointed out that 1.4m people pay more than £500 a year in charges and these are often consumers who are 'vulnerable' with low incomes and low savings. The report claimed that banks are generating around £2.6bn a year from bank charges.
With such a large revenue stream at stake, the eight institutions involved in the court case - Abbey, Barclays, Bank of Scotland, Clydesdale Bank, HSBC, Lloyds TSB, Royal Bank of Scotland and Nationwide building society - have lodged an appeal against the April ruling and a resolution to the case is now not expected until early next year.
Now with no immediate end in sight to the appeal process, the waiver has been extended meaning the Financial Ombudsman Service (FOS) will not proceed with complaints and county court cases have been put on hold. For more information on what the FOS does, click here and watch our recent interview with chief ombudsman, Walter Merricks.
So what can consumers do now?
The continuing delay is frustrating for those waiting to see if the money they have paid in charges will be repaid. However, some may be entitled to have their complaint investigated before the waiver is lifted.
Under the terms of the FSA's waiver current account providers should still investigate claims from those in 'severe financial hardship'. While this exemption has been in place since the waiver was first introduced last July there has been confusion over how financial hardship is defined, so the FSA has included further clarification on this in its new waiver.
Banks should still look into complaints from consumers who can be described as being in 'severe financial hardship'. In making an assessment of financial difficulty, a bank will consider changes in your lifestyle such as unemployment, disability, severe illness, relationship break down or starting a lower paid job. It will also look for evidence of things such as items repeatedly being returned due to lack of available funds; failure to make loan repayments; regular requests for increased borrowing or rescheduling of debts; or someone who frequently exceeds their overdraft or credit card limit.
Even if you won't qualify for having your complaint investigated until after the waiver has been lifted, it may still be worth lodging your complaint now as this will leave you free to switch banks and get a better deal elsewhere. If you move current account without lodging any such claim, it may be harder to get this money back at a later date.
Where can you move to?
A common misconception among those who are regularly overdrawn is that there is no point switching current account provider, because banks don't want to take on their existing debt. However, in most instances this is not the case. Alliance & Leicester (A&L), for example, is offering £100 to people who switch to its Premier current account and it said it will match the overdraft limit provided by their current bank.
Overdraft rates and charges vary significantly, so if you do go into the red each month, it's well worth ensuring you are not paying over the odds for the privilege.
A&L is the leader in the overdraft market. It offers a 12-month interest-free overdraft for new customers on its Premier, Premier Direct, Premier 50 and Premier 21 accounts, thereafter you pay 50p per day up to a maximum of £5 per month.
Barclays is overhauling its overdraft system from August 18. It is introducing a 'Personal Reserve' buffer which means customers can exceed their overdraft limit or go overdrawn without permission by up to £250 without incurring a penalty charge. Barclays is also slashing its unauthorised borrowing charges from £30 to £8.
However, while these changes sound attractive, other changes reduce the competitiveness of Barclays' offering. It is increasing its authorised overdraft rate from 15.6% to 17.9% and customers will have to pay £22 for every five-day period they make use of their Personal Reserve. Most people will therefore be better off with other alternatives.
In addition to A&L's accounts, Abbey also offers a free overdraft. Its Preferred Overdraft account gives a 0% overdraft for 12 months, however, it is a less attractive proposition than A&L's after that time as the standard overdraft rate is 12.9%.
If you only require a small overdraft facility, First Direct offers a £250 interest-free buffer, while Co-operative Bank's Current Account Plus gives a £200 free buffer, and Cahoot offers a £100 buffer. Of these accounts, Cahoot's is the best for balances in credit as it pays 3.75% on balances up to £249,999 if you are happy to have no chequebook, or 3.65% if you want a chequebook. Neither First Direct nor Co-operative Bank pay any interest on balances in credit.
If you have particularly poor credit you may need a basic bank account such as the Think Banking Managed Account which offers 2% on balances above £1. This does incorporate a £12.50 monthly fee and a £25 set-up fee but there are no unauthorised overdraft fees or charges with this deal because all financial commitments are managed for you by a money manager.
Have your say: Are you caught in a debt trap because of bank charges? Maybe you can offer advice to those who are struggling to stay within their borrowing limits? If you have something to say on the issue of unauthorised borrowing fees, visit our forum and share your views with other members.
Disclaimer: Please note that any rates or deals mentioned in this article were available at the time of writing.
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