Bank And Overdraft Charges

Some banks could look at increasing account charges into order to recover lost income from other areas of businesses, especially as more consumers seek to recover possibly unlawful penalty charges.

The growing consumer concern about banks charging customers for late payment, bounced cheques, returned direct debits and unauthorised overdrafts means that some banks are being forced to find alterative ways of raising income.

The recent decision to increase the interest rate by the Bank of England could mean that banks will be able to implement 'hidden' charges on customers' account. In particular, it is likely that many high-street banks, including Natwest and LloydsTSB are planning to introduce increases in overdraft rates to help recoup losses.

Nick White, head of personal finance for uSwitch, commented: "Banks are already making a massive £10.1 billion per year from overdrafts but it appears this isn't enough. It seems to me that these providers have used the recent rise in the Bank of England base rate as a smokescreen to make these changes and will probably continue to do so."

There are also concerns that the trend for consumers to start legal action to reclaim charges could lead to the end of "free" banking for many customers who have not gone over their agreed overdraft after it was revealed that banks have already paid out thousands in compensation to customers to avoid the possibility of losing a high-profile court case.

Eddie Weatherill, of the Independent Banking Advisory Service (IBAS) said: "Consumers are fighting back and seem to have found a chink in the banks’ armour."

He added: “The banks don’t want to see this tested in court because the law is not on their side."

HBSC is just one of the big banks stressing that any court rulings could possible mean banks will move towards a fee-based monthly charge for providing an account, with its UK chief executive Dyfrig John confirming that greater transparency would ultimately involve extra charges.

The Office of Fair Trading (OFT) has already ruled that credit card providers should ensure that any charges on accounts for late payments or over credit limit charges should be reasonable and therefore imposed a limit of £12 for most credit card companies. However, such limitations have meant that credit card companies have reduced the number of zero per cent products and low-interest cards available to consumers to help recover income.

At present banks charge customers if they go over their agreed overdraft limit but some consumers are now arguing that the fees are unreasonable. Most banks charge around £20 to £30 each time as a penalty but it is argued that the cost to banks to manage the overdrawn accounts is significantly less.

Therefore, it is expected that the OFT could launch an investigation into the overdraft fees and impose limits as seen in other financial sectors to ensure consumers are only subjected to a proportionate and fair charge. A recent report from Which? estimated that such overdraft charges add up to around £4.7 million in revenue for the banking industry each year and a OFT ruling could drastically reduce this income.

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