The banks won't have to pay back 'unfair' charges for at least another six months after the FSA gave into their delaying tactics. Money talks, as ever.
The Financial Services Authority this week agreed to extend the 'waiver', which allows banks to sit on customer claims over unfair bank charges, for another six months. The move means that banks are not obliged to pay out on any claims, despite a High Court ruling paving the way for the Office of Fair Trading to deem the charges unfair, until January at the earliest - thereby protecting some 30% of the banks total revenue from current accounts.
Yes, you heard that right, at least 30% of revenue from current accounts comes from the dubious practice of levying disproportionately high 'unauthorised overdraft' and 'unpaid item' charges against unsuspecting customers. That's worth a closer look...
As things stand, banks will charge their customers fees of up to £35 when they bounce cheques, despite the fact that the very same transactions cost the banks about £2 to process - a healthy profit right there. But it gets worse, the dreaded 'insufficient funds', or worse 'unauthorised overdraft' scenario is even more of a money spinner. Recent research found that an unauthorised overdraft of £50 over a period of two weeks will cost between £25 and £165, depending on the bank. Again, a nice little earner, especially when you consider that around 23% of us incur at least one of these charges each year.
When you see the figures in black and white it's easy to see how the banks manage to rake in around £3.5bn every year from 'insufficient funds' charges. To put that in context, charges represent the bank's second highest source of income from current accounts - a further £4.1bn comes from the interest they make on our money, but keep for themselves - and current accounts make more money for the banks than savings accounts and credit cards combined.
Given that having a current account is pretty much a household essential, that seems a tad unfair to me. Does that constitute taking advantage of a captive market? Well, I certainly think so.
There are plenty of horror stories to illustrate that point, but one that surfaced this week pretty much sums the situation up. Laura Gibson, a 20 year old student from Cheltenham, inadvertently went 8p over her overdraft limit during a shopping trip in September last year. Her bank immediately charged her £65, then another £30, and another £60 and so it went on, month after month. To date, her total charges for an 8p oversight have run to the princely sum of £800. I kid you not, those charges are one million per cent higher than the original 8p.
When the case appeared in the national press, did her bank have the decency to admit the situation was laughable and apologies? Not a bit of it, a spokesman for Lloyds TSB said: "The charges that Ms Gibson has incurred are not for a one-off unplanned overdraft position of eight pence, they relate to an unplanned overdraft of varying amounts dating back to September 2007."
True enough until you realise that this 'variety of overdraft positions' was almost certainly down to the banks own charges. Presumably the bank also denies that the harassment and financial pressure it applied over a period of six months in no way contributed to Laura's nervous breakdown?
Horror stories aside, all this explains why the banks are so keen to hang on to their unfair charges, and their willingness to pursue the case through the Court of Appeal and the House of Lords if necessary. Yes they want to delay and delay - this six month waiver alone will allow them to rake in at least another £1.3bn (and boy do they need it at the moment) - but more importantly, who wouldn't give up on such easy money without a fight?
It's just a shame that the FSA has played into their hands so comprehensively.
So, what can we do? Well, if you go overdrawn, not a lot apart from harbour a sense of injustice until the waiver is lifted (don’t worry, the FSA has made it clear that we will all be able to reclaim fees from as far back as 2001, no matter how long the banks put it off). However, to avoid nasty surprises:
- Don't go over your limit - Check your current account regularly, and remember that managing your account online makes life much easier
- Find out what your banks' policy on 'insufficient funds' charges is
- Arrange a small overdraft facility (if it is free), to give yourself a buffer if you do make a miscalculation
- Some current accounts offer a text and/or email service informing you if you are overdrawn or about to go overdrawn. If yours does, sign up
Finally, remember all that money (£4.1bn) the banks make from interest on your current account balance, but don't pay to you? Play them at their own game like this:
- Make a list of all your monthly direct debits or regular outgoings and work out the total cost
- After pay day each month, leave just enough in your current account to cover your regular outgoings, and a bit extra for any surprises - you can still do this if you have an overdraft facility
- Put the rest in an instant access savings account - a savings account linked to your current account will normally allow instant transfers
- You'll still be able to spend your money as normal, but you'll get a much better rate of interest on your 'spare' cash - a slightly fairer share of that £4.1bn anyway
The extra interest might only add up to a few pounds a month, but you should be less likely to incur bank charges, because all the bills are covered and you know exactly how much you have left over to spend or save. Anyway, when it comes to banks even a small victory feels good.
