OFT Abandon Bank Charges Fairness Case
There is disppointing news on bank penalty charges today. The OFT have decided to abandon the legal challenge on bank charges fairness. This follows the Supreme Court ruling that said that the specific part of the law they were claiming would allow them to decide on fairness, did not actually apply.
It is a blow for protection of consumers and raises an interesting question. What is the point of the OFT? The title says it all. The OFFICE OF FAIR TRADING. If the OFT cannot rule on what is fair then what is the point of their existence? Either they need to have their powers increased so they are able to rule on what is considered fair or not, or they should be disbanded and the government state plainly that they do not consider it matters whether trading is fair or not.
Prior to this court case the banks paid out millions as refunds to their customers for bank charges that had been applied to their accounts. If the banks believed they were fair charges and they were entitled to them then we, as taxpayers who are now major shareholders in several banks, are entitled to ask why the banks were paying out all these millions of pounds for no reason. If they felt they had a case that the charges were indeed fair they had no reason to repay the charges, so why did they pay out? Surely that represents bad management by the banks.
There are some interesting figures in the documents released by the OFT in relation to their abandoning this case. They say they still believe the charges are unfair but they seem concerned that the legal bill of fighting on could be excessive if they were to lose and be required to pay the banks legal fees. This is undoubtedly true as the banks would spend a fortune on a legal team that was composed of the best legal minds available. That says an awful lot about the legal system in this country. You can only get justice if you have pockets that are deeper than the OFT’s. What chance does the ordinary man in the street have of getting justice when legal fees are such an obstacle?
The OFT talks about the profits generated by penalty charges and shows clearly just how exorbitant they are:-
Paid item and maintenance fees totalled some £1.5bn – which would equate to a return of over 220 per cent on the average balance
A 220% return on the average balance? No wonder the banks fought so hard to retain the right to make so much money so easily.
A lot of people are quick to say that it doesn’t matter what the charge is and that if people are willing spend other people’s money going overdrawn they should pay the price. This misses the point completely.
In many, if not most, cases people are not trying to spend other peoples money. If you phone up the bank and ask them not to pay anything that would cause you go overdrawn they basically tell you to get stuffed. They tell you they are helping you by making the payments. They use the argument that it could be a mortgage payment so they are doing you a favour by paying it. You do not have any option in the matter. They decide to pay and they then make charges on your account. What would be so wrong with giving the customer a choice over whether anything gets paid or not if you do not have the money in your account?
When direct debits go unpaid no money is spent yet the bank may apply a charge of £35 for doing nothing and if it costs the banks £35 to send out a computer generated letter to a customer, as they always claim to be the case, then the banks must be the most inefficient organisations on the planet and their shareholders should be holding the management to account. If it were true why do some banks only charge maybe, £12 for a letter when you go £12.50 overdrawn or £20 when you go £22.00 overdrawn.
People say they don’t want to see the end of free banking and they are fed up with people who want to take advantage of the people who stay in the black with their accounts. What they are not seeing is that they are the ones taking advantage. The free banking is a myth that is only made possible by other people paying for your free account. All those people suffering excessive charges are paying for the cost of your free banking as well as the cost of their own accounts. This cross subsidy is at the heart of the argument.
Is it is fair that people who are, presumably, very short of money should have to pay the banking costs of people who are much better off. It goes against everything we believe about a fair society where the better off help support those who are less well off. Nobody is even asking for that idea to be applied in the case of bank charges. What is being asked is that people should only be expected to pay the true cost of running their own bank account and that is something everyone should consider fair.
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