If charges are fair, then why lower them?


Banks and building societies look set to fight a new court battle over what they have always claimed are fair and transparent overdraft charges.

Woman in debt, bills, statement

But why: if banks thought their charges were fair, then why did they revise them?

Since consumers began objecting to their rip-off fees for unauthorised overdrafts, the major High Street current account providers have protested that what they charge is reasonable.

They say the charges - which can be as high as £38 a time - are to cover the cost of administering an unauthorised overdraft.

But since our Fair Play On Charges campaign began in 2006 most, including Lloyds TSB, Abbey, Alliance & Leicester, Barclays and HSBC, have slashed their rates.

In particular, the amount charged on those who make small misdemeanours has been dramatically cut in a tacit acknowledgement that we are right to accuse them of overcharging for petty mistakes.

Only stubborn Royal Bank of Scotland/NatWest and Halifax have failed to make significant changes - leaving their customers facing hefty bills for even the slightest error.

If you spend to the limit of your account every month, then you should consider ditching these current accounts now.

Last Thursday, the Office of Fair Trading won its initial case against Britain's biggest current account providers. A judge ruled that unfair contract regulations did apply to unauthorised overdraft fees.

This is the point of law that we highlighted, and it has been used by bank customers to reclaim hundreds of thousands of pounds in the small claims court.

Since this case began, the Financial Services Authority gave banks permission to put on hold any attempts by customers to reclaim charges.

This will continue until the next legal ruling is made.

At this point, we would like them to answer why, if their charges have always been fair and transparent, so many banks have changed them since our campaign began?

The most significant moves have been made by Abbey, A&L, HSBC and Lloyds TSB, which took on board complaints from customers who were racking up massive debts just because they had dipped a few pounds overdrawn for a couple of days.

Now, the charges from these banks reflect the size of your indiscretion.

Abbey charges a one-off £5 fee for any transactions it pays that take a customer up to £9.99 overdrawn, £15 if you go up to £19.99, £25 up to £29.99 and £35 for unauthorised overdrafts over £35.

Even though this is a positive change, you should be careful. For instance, while Lloyds has staggered its charges, it costs £6 a day if you are anything up to £25 overdrawn. This means you will build up £30 of fees, plus a £15 monthly overdraft charge if it took you five days to notice that you had gone £5 overdrawn.

Bank charges table

Some banks have also given customers a 'buffer' amount that they can go overdrawn without being charged a fee.

These were previously at the discretion of the bank, and few were granted. But now Lloyds, Barclays, Nationwide and HSBC will allow customers to drop £10 to £30 overdrawn by mistake without picking up a charge, provided they try to put themselves back in credit quickly.

Our research shows that customers who dropped just £5 overdrawn for five days with the old charges would typically pay up to £50 charges. The maximum would have been £100 with Alliance & Leicester, the lowest £25 with HSBC.

Today, customers with Barclays, HSBC and Nationwide BS would pay nothing. Only Halifax has increased charges from £58 to £63. While it has lowered the fees for bouncing a payment, it has increased them for authorising a transaction that sends you into the red.

And unless you pay off your bill quickly, Lloyds, too, can be punitive - setting you back a total £45 over the five days. HSBC has gone one step further, reprogramming its 3,500 cash machines to warn customers if a transaction will send them overdrawn.

If charges are fair, then why lower them?

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