Save our bank charges!

Credit cards with microchipsFor the first time, a bank has had its charges upheld in court. Since the Office of Fair Trading warned credit card providers last year that their penalty charges were excessive, causing all providers to cut fees to £12, people have been encouraged by numerous consumer groups to demand the refund of charges from bank accounts too. These charges might be for an unauthorised overdraft, exceeding an overdraft limit, insufficient funds to pay a cheque or direct debit – in other words, the charges are penalties for people who overdraw their bank accounts, borrowing the bank’s money without permission.

In some countries, going overdrawn is actually illegal. After all, it is only just short of stealing someone else’s money. Yet UK consumers seem to think it is their right to overdraw their accounts without even arranging an overdraft first, and not be charged for it.

It’s clear that the banks are using the charges to make profit, and if the law currently says that penalty charges are only allowed to cover administrative costs, then I suppose the current charging regime is illegal. But I don’t think it should be. In the recent case, the bank had argued that it was actually charging fees for a service, rather than as a penalty. Hopefully, one way or anther, banks will be able to continue making similar charges.

Why am I so keen for banks to be allowed to charge their customers penalty fees? Well, it may come as a surprise to any readers from abroad, but in the UK, almost everyone still enjoys free banking. We don’t have to pay to keep a bank account, and can enjoy a cash card, debit card, cheque book, direct debits, internet banking, etc. without having to pay a monthly fee. Banks make up for this by charging higher penalties for people who go overdrawn. Now, let’s face it, the banks are never going to accept reduced profits, so if they are not permitted to continue charging these penalties, they are going to find other ways to take money from their customers. The net amount consumers pay is going to remain the same, it’s just how the payments are distributed between a bank’s customers that will change. The bottom line is, without penalty charges, banks may well introduce monthly fees for their accounts. There is already an increasing trend for “premium” bank accounts that incur a monthly fee, and one bank has announced a monthly fee for accounts with low balances.

Outlawing bank charges will not be better for the consumer at all. All it will mean is that everyone is paying charges, instead of just those people who are not very good at managing their money. There’s no excuse for regularly going overdrawn. The last thing this country needs – increasingly a country where people are piling up debt and haven’t a clue how to budget or look after their pennies – is a change to the banking system that makes life easier for the financially reckless.

One final note is that, while people may be pleased that they are receiving refunds for unauthorised overdraft charges, it actually only represents a small part of the extra profit the bank is making from them. The interest rate on an unauthorised overdraft is typically around twice that for an authorised one. Hopefully, if penalty charges are ruled illegal in a higher court, the banks will respond by tweaking their interest rates. That might enable those who prefer to save and not spend to retain the free banking they deserve.

6 responses to “Save our bank charges!”

  1. Robert Brightley

    Your argument is effectively that the poorer and less financially wise customers should pay the banking costs for the richer customers. How can that be fair?

  2. Jonathan

    Everyone pays for their own banking with the deposit they make. It’s not about “poorer” people (who won’t have accounts they can go overdrawn on anyway). And it’s not only rich people who currently avoid bank charges. The issue is the people who don’t know how to live within their means. There are already few incentives for savers and people responsible with their money; the last thing we need is to take one away. Debt, and the way it seems all too acceptable, is damaging our society.

  3. Joycellyn Akuffo

    Jonathon,

    Until I read your post, I hadn’t thought about banks ‘balancing their books’ by charging customers for unarranged borrowing.

    I have been charged by my bank before (please see my blg womanwiththreelives.blogspot.com) and it was the excessivness of the charges that willed me on to get the charges refunded.

    I personally don’t have a problem with banks charging penalties – as long as they are accurate. One £38 charge that I received from Natwest was for 5p (from my Paypal transaction when I was setting up my bank account to it) and I found that horrendous. i don’t see why they can’t just reject the payment itself – aren’t most of these charges automated anyway?

    Also, if people have difficulty ‘managing’ their money, why should they be he ones to pay for other people’s bank accounts – rich or poor? If banks want/need to charge the public for the priviledge of having an account then we should all pay a flat fee. People who are having difficulties managing their accounts should surely not be further penalised for this with hefty bank charges!

    I don’t think this is unreasonable…

  4. JH

    I’ll second what Joycellyn said. I do tend to manage my bank account quite well, but a few years ago, suffered depression, lost a well paid job and took on low paid work to pay the bills. a Direct debit failed incurring charges causing others to fail – a downward spiral leading to £100s of debt – purely down to charges. Went to see the bank and basically told to bog off.

    Happy with your free banking ?

  5. Vic Essex

    Can you help me with late payments on BT Telephone Bills and the charge for not paying via direct debit ?

    Thanks

    Vicessex

  6. Gary Mellor

    I dont think you have got the point. People arent really arguing that charges should be taken away all together, just that the level of the charges does not reflect the work required for dealing with unauthorised overdrafts or unaid items. And yes, banks do give overdrafts to low income people, I have a £400 overdraft, increased from £300, because the bank decided to increase it even though i had just lost my job. If it costs the bank £38 to deal with an unpaid item then i want to work for them because i could do several of those an hour and I would be absolutely minted. As you say, there is a huge debt problem in this country, but arent the banks contributing to this by keeping people in debt? Surely charging obscene amounts hinders a person to getting back on track. Also, why would the banks have paid out money already if they dont think there is something wrong with their charges? I wouldnt cough up if I believed I was in the right!!

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