A wide ranging review of charges imposed by the banks on their customers has been instigated by the OFT. This follows an earlier, initial, review of Bank Charge penalty fees which led the OFT to the conclusion that there is a need for a more detailed study of the way banks operate their customer’s accounts. The OFT is concerned that customers are not aware of the true cost of their banking with examples such as poor rates of interest on current accounts and unkown additional costs of purchases abroad.

When the OFT came to the conclusion that the charges applied to credit card accounts for late payments and going beyond credit limits, they informed the credit card companies that they were of the opinion that charges of over £12 per item was unreasonable. The OFT said such charges would be challenged in the courts since they considered they were very likely unlawful. The credit card companies complied, grudgingly and still maintaining their assessment that the charges were reasonable and justifiable, reduced their fees to the specified £12.

What they did next was to start applying other fees and charges elsewhere and increased interest rates. Clearly concerned that their enormous profits would be harmed by the reduction in fees.

The OFT, mindful of this behaviour, seems to have come to the conclusion that the banks cannot be trusted to treat their customers fairly, which many customers would no doubt agree with, so they are having a wide ranging review to look at all aspects of the way banks deal with customer accounts.

Preliminary results are expected towards the end of the year. We look forward with interest.

Money Magic: Seven Simple Steps to True Financial Freedom (Quick Reads)

The BBC is reporting that a customer of the Alliance & Leicester Bank has had an extremely unusual offer made to him in response to his claim for a refund in Bank Charges.

The BBC commissioned a study that suggested that a figure of £4.50 should be the maximum figure for the true cost of bouncing a cheque by the banks. This was revealed in a Money Programme in December 2006. The banks, of course, insisted that their normal fees were fair and reasonable in spite of this evidence.

The Alliance & Leicester usually charges £25 for bouncing a cheque but following this customer’s request for a refund of charges the bank has suggested that a refund of the difference between the figure the BBC calculated and the charges the bank had imposed was a reasonable settlement.

This is a huge change in what has up to now been a consistent policy amongst the banks. Prior to this change, which might yet turn out to be a one off, the banks have all insisted their charges are a fair and reasonable recuperation of their costs. The banks have initially refused requests for bank charges refunds and stated that they would defend any action brought against them. Thousands of people have indeed resorted to applying to the small claims court for the refund of their charges and invariably the banks have, at the last minute, decided to settle the claims in full before the case reached the court.

It would seem likely that the banks really did hope that this problem would just go away after a small number of claimants had received refunds. It hasn’t happened like that. Thousands have had refunds and it must be starting to hurt the banks profits. It has seemed odd that the banks have refunded in full as they are clearly entitled to make some charge for the additional work involved in bouncing cheques etc.

It may be that this is the first sign that the banks are at last recognising their failure to conform with the law, though they will never admit that, which states that they may only charge for their costs and they may not charge a penalty fee in excess of that. They are certainly on a sticky wicket with thousands of claims continuing to be made and the OFT investigating their practices.

It would make a lot of sense for them to reduce their charges to a more reasonable level and that way they will at least keep some of the money they have taken from their customers accounts.

Perhaps we can expect to hear reports that due to ‘new’ efficiencies and improved procedures the banks will generously be reducing the charges they apply to accounts. If they don’t find some means of justifying a reduction in charges they may well find that the OFT report will force them to take action and swallow a great deal of humble pie. Watch this space.

Money Magic: Seven Simple Steps to True Financial Freedom (Quick Reads)

It has been reported that a businessman from Norfolk has successfully reclaimed £35,988 in Bank Charges and interest from the Natwest bank after he accused them of unlawfully taking the money from his account.
Natwest responded with the usual, boring and unbelievable argument that the legal costs of defending the claim would not be justified compared to the cost of repaying the amount claimed.

Excuse me? £35,988? How long a case did they expect it to be? There is no question that legal costs are ridiculously high. Perhaps even this case would have cost Natwest that amount. I have no doubt that they retain some of the best and, no doubt, most expensive legal experts but I would also expect that they use those legal experts on a regular basis in their business for all sorts of things. Legal expenses would be accepted as a normal business expense as part and parcel of running their business.

The Bank Charges website at www.penaltycharges.co.uk is now reporting that it’s members have reclaimed £2,424,394.00 from their website alone. There are several other websites, some free such as the above and quite a few now charging to provide the reclaim service. If one website alone has helped in the reclaiming of over two million pounds how much have all these sites and individual claims recovered? It has to be a very large figure indeed and yet the banks only have to have one solitary test case establishing they are acting quite lawfully and these claims would be stopped in their tracks. Are the costs of defending a claim likely to be more than £2,424,394? I don’t think so. We are, after all, only talking about the small claims court anyway.

The OFT is carrying out a thorough investigation into the pricing of retail bank accounts charges. In response to consumer concerns over bank current account charges, the OFT announced an in-depth study of retail bank pricing. This will sit alongside a formal investigation into the fairness of bank current account charges.

This study follows an initial review carried out by the OFT into these charges. The finding of this initial review is that the OFT shares the public concern about the level and incidence of bank current account charges, but it recognises that the application of the general principles it set out in 2006 to the banking industry is not straightforward and that a more detailed examination is needed.

The Liberal Democrat MP Matthew Taylor referred to Bank Charges as “the biggest bank robbery in Britain and it involves the banks robbing their own customers.” Could anyone disagree with that statement?

The banks behaviour in all of this has been shameful. They should either defend a test case and prove the legality of these charges, if that is possible, or shut up and accept that they have been flouting the law deliberately and knowingly. If they didn’t know that there were questions about the legality of their charging structure in the past then they certainly can’t be unaware now and they should establish the legal position. They have a duty to their shareholders to operate in the best interests of those shareholders. I doubt many pension funds would want to discover that the directors, acting on their behalf, were doing anything that was against the law or that they would consider that to be in their best interests.

Whether this is the case is yet unproven but an apparent disregard of the law should not be allowed to go unpunished. I would like to see the directors of companies, who do such a thing, brought before a court and sent to prison if they are found to be guilty of disregarding the law. People go to prison for taking small amounts of money from people when it is against the law. If it were found that large companies were taking Billions of pounds unlawfully shouldn’t the ones in charge face a similar punishment.

The Banks seem to be taking the view that they would rather repay millions of pounds even though they consider they have no reason to do so. They could choose to spend a few thousand pounds in legal fees which they say would enable them to justify their charges and prove the legality of those charges. How would they justify this to their shareholders? Is this acting in their shareholders best interests.

What conclusions can we draw from this? It surely couldn’t be that they know damn well they have no right whatsoever to keep this money, could it?

Money Magic: Seven Simple Steps to True Financial Freedom (Quick Reads)