Watchdog Clamps Down on Bank Charges

A government watchdog has today warned the high street banks to stick to existing guidelines on charges, or face the consequences.

The result could be a reduction in charges for bank services for millions of customers.

The Office of Fair Trading (OFT) recently ruled that penalty charges of up to £25 for credit card customers who are late in making repayments, or who exceed credit limits, were unfairly heavy.

Now, the OFT is threatening to investigate other charges levied by the banks in order to bring them into line with the amount of work dealing with customers' needs and actions actually generates for the industry.

A spokesperson for the Office stated: "'We believe that the same principles as those on credit cards should be implemented on all products. They should be cost effective and not be cross-subsidising.

"'There is not an investigation at the moment, but we are looking at the situation. We would rather they take on board the guidance from us and the results of court cases and change their ways."

Of particular interest to the OFT are charges imposed for exceeding overdraft limits and for bounced cheques, each of which frequently lead to charges of up to £30 for each instance.

In July, the OFT found that the high charges imposed on credit card late payments were "excessive" and "unfair".

At that time, the OFT wrote to eight credit card providers - who are obliged to respond by the end of this month.

The Office's announcement today makes it clear that it expects this ruling to apply to other charges made by banks. Indeed, earlier this month, it warned: "Banks will be expected to apply these principles to other 'default' charges levied on similar products." It confirmed that this would include bank accounts."

According to Thisismoney.co.uk, Nationwide is the cheapest of the main high street institutions when it comes to fees, charging £15 for unauthorised overspending on current accounts and £28.50 for bounced cheques.

Abbey is the most expensive for overdrawing on your account, with a charge of £30 a time, while Halifax charges the most for returned items, at £39.

Lloyds TSB and HSBC do not charge for the first time an account goes overdrawn in a year or in a six-month period, respectively. Barclays, by contrast, does not charge if an account goes up to £5 overdrawn, but beyond that charges £25.

If the banks respond positively, it could save millions in bank charges for customers - many of whom have long complained about the punitive size of some bank charges.

In its report, the Office stated: "There is clearly an administrative and time cost to the [bank] in dealing with delinquent usage of a current account. One would expect a fair charge for this cost to be passed on to the account holder. However, in the age of automated mail it is difficult to see how the automatic production of a letter or the non-payment of a standing order can possibly justify a charge in the region of £25 to £39 per occasion."