Banks face OFT inquiry into cost of an overdraft

[OpenMind]

http://www.telegraph.co.uk/news/main.jh ... w_08092006





Banks face OFT inquiry into cost of an overdraft

By Rosie Murray-West, Business Correspondent

(Filed: 08/09/2006)

The Office of Fair Trading is to investigate overdraft charges on bank accounts after persuading credit card companies to slash their charges by up to half.

The organisation said yesterday that it would turn its attention to bank charges levied on people who run up overdrafts without permission, which can be up to £25.

John Fingleton, the chief executive of the OFT, said credit card lenders had agreed to slash their default charges after the organisation had recommended that they should be under £12.



"The reduction of default charges on credit cards is great news for consumers," he said.

"By taking an innovative approach to this issue, the OFT has brought about a significant change in one area of the financial services sector.

''We are now extending that work to inform ourselves about account default charges."

An OFT spokesman said that the initial investigation into overdraft charges will take between three and six months, after which the organisation will decide whether to look at the issue in more detail.

The OFT said it would not speculate whether charges then would be capped — or at what rate. The Citizens Advice Bureau welcomed the announcement and said it hoped that the investigation would look at the charges levied on basic bank accounts, which are used by many of the most vulnerable people in society.

"Some basic bank accounts charge as much as £39 for 'bouncing' a direct debit – which is very nearly a whole week's money for a person under the age of 25 on income support," Teresa Perchard, the director of policy, said. "Citizens Advice Bureaux are also seeing evidence of potentially unfair charges on mortgages that are in arrears and we will be pressing the OFT to look into this area too."

However, the British Bankers Association (BBA) said it thought the system was already fair.

There was "disappointment" in the sector that this area was being looked at after the banks had already agreed to cut credit card default charges. "The majority of customers do not pay fees and enjoy free in-credit banking, unlike the vast majority of developed economies," said Ian Mullen, the association's chief executive.

If the OFT did decide to cap overdraft charges, it could spell the end for free banking in the UK.

Dyfrig John, the chief executive of HSBC, warned consumers earlier this year that, if the potential to charge fees for unauthorised overdrafts and other personal banking issues was removed, people would have to accept that banking would no longer be free.

UK customers have enjoyed free banking for almost 20 years.

Yesterday's announcement by the OFT came as a financial website said that Britons pay out £40 million every year in penalty charges on their bank accounts.

According to the website moneysupermarket.com, some 42 per cent of current account holders end up paying the price for going over their authorised overdraft limit.

Banks take between £20 and £125 a month from those who mismanage their money.

This does not include the additional interest charged on their unauthorised borrowing.

© Copyright of Telegraph Group Limited 2006.

[gmc]

I think they should impose a massive fine on the banks and make them prove it wasn't justified, in the meantime they could charge them massive interest on the amount owed until they pay up and add in extras like £100 every time they write to tell them they haven't paid up.