As battle begins over bank fees, will customers lose the war?

The Office of Fair Trading has gone to the High Court with the banks to contest the scale of fees levied on those who slip into an unauthorised overdraft. However, it could be the consumers who pay if the banks are defeated…


For the thousands of customers who have contested bank charges over the last 12 months, the opening of the High Court battle between the Office of Fair Trading (OFT) and seven banks and one building society could not have come soon enough.

However, now there are new fears that a victory for the OFT could actually backfire on consumers.

Currently, customers have reclaimed more than £19m in fees from their banks according to the Consumer Action Group. However, if banks are forced to reduce their charges for unauthorised overdrafts, then prices may go up elsewhere – with many experts predicting an end to free banking.

Fee-based banking is prevalent throughout the world, and has already made in-roads in the UK – first direct being the first major provider to charge a £10 monthly fee for the use of its current account.

That move earned the provider a lot of negative press – and only recently has the company bounced back thanks to the consumer-friendly first direct 1st account with the £100 incentive that we looked at last week.

Our research suggests that a widespread introduction of charges would be very unpopular in the UK, despite their status in Western Europe.

The most popular option among Brits is to continue with the current system of free banking with high charges in place if you break the rules. We found only 1% would choose to pay for each transaction made and only 8% want upfront monthly or annual fees, so, ironically, there may well be many Brits hoping the banks win this case.

It’s a questionable point as to whether we really have free banking anyway. Many consumer groups claim that banks earn money through delaying payments and transfers while customers are forced to wait for three-five working days. Most current accounts also offer very low rates of interest – 0.5% being the norm, and 0.1% being quite common.

If you want to compare the rates of interest available from the UK’s banks, use our current account comparison tool. The current market leader on interest is the Abbey account, which offers 8%, but the Alliance & Leicester Premier Direct Current Account, which has market-leading overdraft terms as well as a 6.5% in-balance interest rate, is arguably a better ‘all-round’ offer.

It could be argued that banks are already clawing money back and that a new bank ‘rip-off’ has emerged.

Some of the biggest banks in the UK used December’s base rate cut to slash savings rates – and yet they have not passed on the full benefit of the rate cut to mortgage holders.

According to statistics gathered through our savings account comparison tool and our mortgage comparison tool, of 50 major banks and building societies in the UK only 17 have moved rates ‘positively’ for consumers since December – i.e. they’ve cut mortgage rates by more than they’ve cut savings rates.

A massive 33 of the 50 providers listed have cut savings rates by more than they have cut mortgage rates – including high-street names such as Abbey, Alliance & Leicester, the Royal Bank of Scotland and Lloyds TSB.

In particular, both Intelligent Finance and Manchester Building Society have met with criticism – both have cut savings rates by the full 0.25% but have yet to touch their mortgage rates.

It may take much of 2008 for the bank charges issue to be resolved, and regardless of the outcome it may not fall favourably for consumers with banks already proving capable of clawing back our cash in other ways.

Perhaps the best solution therefore is to vote with your feet – and if you’re not happy with the treatment you receive from your bank, or its terms, make it pay by finding a better deal.

DISCLAIMER: Please note that any rates or deals mentioned in this article applied at the time of writing and may no longer be available/applicable today.

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