As I write this article, the Office of Fair Trading test case against seven banks and a building society has just started its second day. The OFT is basing its case on the unfair terms in consumer contracts regulation of 1999. This follows on from the OFT’s success in forcing the banks to cut their credit card default charges to no more than £12 last year.
In February 2007, it was announced that the big five banks made profits of almost £40bn for 2006. That is £1,250 a second.The amount refunded in bank charges by the big five in 2007 totalled £399m. That is about 1 per cent of their profits for 2006.
Banks are grotesque and monstrous money-making machines. On the one hand, that is good news for UK plc but on the other hand, it is bad news for consumers.
The problem is not the fact that banks make huge profits per se but that consumers are being treated very shoddily.
I believe banks should charge for unauthorised overdrafts and payments against uncleared funds. However, in an electronic age, where a huge amount of banking is online, electronic and automated, the costs of running an account have reduced dramatically for banks.
The labour cost of bouncing a cheque was discovered when a former Yorkshire Bank employee was asked to study some of the bank’s internal processes. She worked out that the cost to the bank was no more than £2 per bounced cheque. However, banks will charge anything up to £39 for a bounced cheque or declined payment.
The banks have devised ways of delaying transactions which catch out many consumers unfairly.
Cheques usually take at least three working days to clear but some banks will take four days to clear a cheque and societies can take a week or more. In addition to this, it takes typically two working days for an electronic transfer of funds from one bank to another in spite of the fact that the transfer is from cleared funds of the payer and that the transaction is instantaneous.
Unfortunately, this whole process frequently catches out the unaware consumer who then incurs a charge of, say, £35 for exceeding an overdraft limit by, say, £2 for one day. It is scandalous and totally unfair. Banks make £3.5bn a year in unauthorised overdraft fees.
At a time when the FSA is pushing treating customers fairly on the financial services industry, it is inconceivable to me why the banks are not put under at least the same scrutiny for such awful business methods.
Gone are the days when your bank manager and staff knew you as a personal customer and gave you a personal service. It has all been replaced by computers, automation, call centres and spotty young kids working at the branches who are pretty clueless when it comes to answering basic questions.
Sure, the banks should be allowed to make charges for unauthorised overdrafts but their methods need to be overhauled and their charges need to be set at a fair level.
On the continent, there is no such thing as free banking. You pay to use a current account. Quite right, too. A bank provides a service and has overheads to pay just like any other business. There is no such thing as a free lunch.
I would be surprised if the test case did not go in the OFT’s favour. I hope it will result in unlawful bank charges refunds for many, reduced and fairer fees for unauthorised overdrafts, the end of “free” banking and a reform of banks’ unscrupulous and unfair delaying tactics over transactions. Hopefully, the banks can start putting customers first and start offering real service.
Tony Byrne is financial planning director at Wealth and Tax Management