Raid the banks and spare my paranoia
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Whenever I write about the retail distribution review, for example, I am virtually guaranteed to get an email telling me that the whole purpose of the RDR is to increase the influence of banks at the expense of the IFA community.
This view applies to virtually every aspect of the RDR's proposals. A similar attitude permeates most other aspects of regulation, which IFAs appear to believe is deliber-ately structured in order to give a competitive advantage to banksUsually, I find such views slightly obsessive but occasionally I do find myself wondering whether the banks are getting as much scrutiny of their business activities as they deserve.
Take, for example, the announcement last week by RBS/NatWest banking group that it is to slash its overdraft charges. We have just been told that from October 1, RBS and NatWest customers will be charged £5 for having a cheque bounced, down from £38. The fee for paying an item on an overdrawn account falls by half to £15.
If you use your cheque guarantee card while overdrawn, the fee falls from £35 to £15 while the monthly overdrawn account charge will fall to £20 from £28.
The way the story was treated in much of the media was that the RBS/NatWest banking group was allowed to get away with the underlying idea that this was a wonderful initiative that helped raise the competitive bar for other UK banks.
Yet the issue of unauthorised overdraft charges is only in the news because of a combination of two linked facts. First has been the battle waged over a number of years by millions of customers demanding compensation for being grotesquely over-charged by their banks.
Second is the long-running court case between the banks and the Office of Fair Trading. This legal wrangle has been running since mid-2007 and on two previous occasions - at the High Court and the Court of Appeal - the banks have lost. They are now taking their case to the House of Lords. This moratorium on having to deal with their aggrieved customers has been agreed by the banks with the FSA, which periodically renews it until the case is decided upon by the Lords.
In effect, until the UK's most senior judges give their verdict, probably not until next year, the banks do not have to compensate millions of people who have been overcharged on their current accounts. No wonder so many experts see the banks' legal moves as a delaying tactic.
What makes RBS/NatWest's decision on overdraft charges so interesting is that it has blown a hole through at least one of the banks' most important arguments.
For years now, the banks have refused to give a breakdown of what it really costs to manage someone's unauthorised overdraft. The banks themselves have always claimed that they only charge their customers the actual cost of doing so and make no profits from their huge fees, notwithstanding the OFT's contention that anything up to £1.6bn of annual profits could be at stake.
Yet most experts say that the actual cost of "managing" a typical unauthorised over-draft - that is, sending out a letter to someone telling them they are overdrawn - is £2.
If that is really the case, then poor old RBS/NatWest is likely to be heading for a thumping financial loss in terms of how much it costs to manage the overdrafts among its 12 million customers. It is entirely possible that RBS is so much more efficient than all other banks and it alone can afford to make cuts in its charges because its cost base is much lower than its rivals.
Possible - but unlikely. The truth, of course, is that the charges levied on overdrafts have always been excessive. They contribute massively to the profits made by banks.
That is why RBS/NatWest's decision that they intend to lower their costs is so important. It offers powerful circumstantial evidence that a key plank both of its own and all other banks' argument is total codswallop.
No wonder consumer group Which? has said that although the announcement by RBS/NatWest is "welcome", if it really wants to get into our good books, they and other banks should imme-diately abandon their current legal challenge to the OFT and compensate everyone who has been hit by overdraft charges.
But the decision to cut overdraft charges is important for another reason. You see, if an IFA were to say one thing about his business activities, only to be caught out a few months later by evidence suggesting that he had been telling a load of porkies, you would be seeing the metaphorical equivalent of a police raid smashing down his office door.
Thanks to the very helpful announcement of RBS/Nat West, I wait to see whether a similar raid will take place on the corporate headquarters of the UK's big banks. If it does not, I may find myself getting a little paranoid.
Nic Cicutti can be contacted at nic@inspiredmoney.co.uk
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