This morning the OFT (Office of Fair Trading) withdrew from its battle against the banks exhorbitant penalty charges, following the court case ruling against them last month.
I have to declare a personal interest in this. I was one of the original group of 5 who set up a Bank Charges Action Group in 2004, following an article by barrister Richard Colbey in the Guardian money section. Here's details of one of the first cases with Stephen Hone, one of the original group members. Though it was, of course, the likes of Martin Lewis at Money Expert who turned it into a compaign involving millions.
There has been much press debate about whether the charges are fair, with some arguing that it is quite right that those who go overdrawn should subsidise the more well behaved account holders. But the argument ahs never been about fairness but about the law. What Colbey pointed out was that, under well establihsed UK law, it was illegal to levy penalty charges that were greater than the cost incurred.
In the early days the banks argued that the charges did reflect their costs. I was one of the first to go to court, in 2005, and NatWest won that one because their barrister persuaded the magistrate that the £35 charge per bounced cheque reflected their actual costs.
In fact it later emerged, from internal bank leaks, that the true cost was closer to £2. A penalty charge so out of proportion to the cost was clearly illegal and so the banks changed their argument, claiming that it wasn't a penalty but a charge for a service provided.
In reality we all know they are penalty charges, and they used to be referred to as such. And we all know, as Peter McNamara - ex Head of Personal Banking at Lloyds - acknowledged on the Today programme this morning, they are used to cross subsidise other personal accounts - an act that would be illegal if they were recognised as penalties.
It is sad that the OFT has chosen to withdraw from the battle to get the banks to obey the law of the land, which could have benefitted millions. So the banks will be able to continue, as John Humphreys put it this morning, to "rip us off".
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1 comment:
Hi Henry,
Didn't realise you were one of the original campaigners. Great stuff. Apparantly in Sept Lloyds and Natwest lowered their fees. Not sure if they will put them back up again in light of the ruling from the OFT, which in itself is not very clear.
If I can find a bank that has a resonable fee (like £10) for going overdrawn then I would switch to it, and so would millions of other consumers. Doesn't look like we can rely on the government or the courts to bring fairness to the system, but hopefully consumers will eventually win by leaving banks that rip them off!
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