Borrowing Charges
Overdraft costs over the top?
Summary: Facing heavy bank charges? The OFT is working to reduce potential costs; in the meantime keeping tight control of your finances could pay dividends.
Are you in dispute with your bank regarding their charges? If you are then you are not alone, and you do have support for your actions. The general picture is that if the banks have your money and are making some handsome profits from the total held for all customers, then they are none too keen to share those profits with you. On the other hand, if you should slip into the red by a pound or two for a couple of hours, then they are only too keen to claim back what you owe them, and at the same time to hit you with huge charges, presumably to teach you not to misbehave again.
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One of your best allies in the battle for reasonable charges is the Office of Fair Trading (OFT). Basing their case on the need for charges to be nearer to a true reflection of actual costs incurred by the account provider, they have made a start with the credit card issuers. The success of this action has already been widely reported, with charges for default on payment being reduced from a typical minimum of around £20 (as high as £35 in some cases) to a ceiling of £12 - this being regarded as an accurate reflection of the actual costs involved.
It naturally followed that current account charges were next on the investigators lists, the OFT having presumably picked up on customer complaints. These appeared in the financial pages of newspapers and detailed many cases where it appeared that bank charges did not merely redress the balance where an account holder caused costs by going overdrawn, but had faced charges on top of charges. Missing payments on loans can attract similar penalties. This form of penalty appeared to be an important source of income for the banks and also to be acceptable to shareholders, despite the report by consumer champion 'Which' - they claim that charges for unauthorised overdraft have been costing the bank's customers almost £5 billion a year.
Following the intervention by the OFT, the banks have reduced their charges for unauthorised overdrafts, but have generally raised the cost of authorised overdrafts, demonstrating their determination to maintain their profit levels come what may. The increase applied has varied considerably depending on the bank concerned; Lloyds TSB have raised their interest rate for an authorised overdraft by 0.2% to 18.4%, Natwest by 1.17% to 18.86% and Smile by 2% to 11.9%.
Returning to the question of unauthorised overdrafts, a request has been thrown into the ring by the Banking Code Standards Board who are requesting notice of the charges to be made 14 days prior to an unauthorised overdraft being taken out. The problem is that a customer who is in need of an unauthorised overdraft is a likely to be a customer who has severe financial difficulties and may have difficulty in finding the time to get the rate information, query it and agree an outcome which is satisfactory to both parties. Negotiation under duress, albeit from outside influences, can be very difficult - when the wolves are at the door rapid decisions are the order of the day! So whilst this is a positive move, rather more is needed to solve the problems which exacerbate this situation.
