If the OFT wins the test case into unfair banks charges it could mean that customers who have always managed their accounts properly will pay the price. According to Dale Lovell, Editor of FinanceDaily.co.uk, although a victory for the OFT would be good for those people who have paid out in penalties, it could spell the end of free banking, which would hit sensible customers the hardest.
“If the banks lose the case it will almost certainly be the end to ‘free’ banking in the UK because the banks will have to find alternative ways of earning money back from customers,” said Dale Lovell, Editor of FinanceDaily.co.uk.
“While those who have suffered under unfair penalties will view victory as a good thing, in the end if the banks lose, it will effectively mean that the majority of bank customers, who manage their bank accounts properly without going into debt, will end up paying for those customers who get into financial difficulty.”
Lovell says he thinks the most likely outcome is that interest paid by banks on current accounts will be replaced by monthly standing charges; “if the banks lose this case we will go from a position of free current accounts to being charged for current accounts,” he said.
The court case, which sees the OFT take on Abbey, Barclays, Clydesdale Bank, HBOS, HSBC, Lloyds TSB, Nationwide and the Royal Bank of Scotland Group began on January 17, and seeks a legal ruling on the issue of ‘unfair’ bank charges.
Back in April 2006, the OFT issued a statement where it labelled the fees being charges to customers for things like exceeding an agreed overdraft limit as ‘unfair’ and illegal.
While the OFT agreed that banks were perfectly within their rights to charge customers for a breach in their contract, they argued that the charge should only be to ‘cover limited administration costs’ and should not make a profit.
Some banks were charging up to £40 for things like bounced cheques, and the OFT said that this could not be justified as covering costs. People were encouraged to claim back ‘unfair’ bank charges, and so far, more than £800million has been claimed back.
But the banks continued to argue that what they were doing was fair and just, with British Bankers’ Association chief executive, Angela Knight, saying at the time: “The banks have always been firmly of the view that the fees they charge customers are fair and clear.”
So it was decided that the case would go to court for an official, legal ruling and the OFT has put a freeze on reclaiming bank charges until a ruling is reached; the case began on January 17 and is expected to go on for some time.
