ONLY about 20 per cent of the
holders of the 40 million current
accounts held with High Street
banks are said to pay charges -
but they may be in sight of victory
in their campaign to cut the
charges of going into the red.
Campaigners claim these
charges, mostly between £25 and
£35 per item, are out of proportion
to costs actually incurred by
banks when customers step out
of line. The price comparison service
uSwitch.com estimates that
more than one million compensation
claims - demanding partial
return of charges - have been
on hold since July last year, totalling
more than £713m.
The banks have defended their
charges as part of the "price or
remuneration" which they are
entitled to collect for services
supplied to help customers maintain
their day-to-day finances -
and argue that they have the
right to set charges at the level
they think fit.
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This initial line of defence has
plainly been breached.
Squadrons of expensive QCs
were on parade when High Court
judges ruled on the test case initiated
by the banks: charges incurred
on unarranged overdrafts,
they said, are "assessable for fairness"
under the Unfair Terms in
Consumer Contracts Regulations
1999.
The decision sends the dispute
back to the Office of Fair Trading
(OFT) to decide a fair level of
charges banks can make.
As the OFT previously leaned
on the banks to reduce penalty
charges on credit cards, the assumption
is that OFT intervention
will again force charges down.
The dispute between the banks
and its disgruntled customers involves
huge sums: banks are
reckoned to collect between £2bn
and £3.5bn each year from
charges on unauthorised overdrafts,
bounced cheques, and on
card transactions made while
customers are in "unauthorised
territory".
It is estimated the banks have
paid more than £700m in refunding
charges to nearly 380,000 customers.
HSBC warns its compensation
bill could top £300m.
Certainly, many more potential
complainers could emerge
when legal discussions are eventually
concluded.
Martin Lewis, founder of
moneyexpert.com and a leading
campaigner against the charges,
says 50,000 people downloaded
template letters from his website
to seek compensation within two
days of the High Court judgement.
It is suggested that, in
total, the banks might have to refund
as much as £9bn in compensation
payments for charges
made during the past six years,
the cut-off point for claims.
This might have huge implications
for the majority of bank
customers with no complaints
about their charges: will they
have to pay up if the banks lose
income elsewhere?
While this campaign has gathered
momentum, the image of
the banks has taken a huge hit:
once-mighty High Street
leviathans looking to conquer
the world on the back of Britain's
booming economy are reduced to
shadows of their former selves as
recession looms.
This week, Halifax Bank of
Scotland (HBOS) joined Royal
Bank of Scotland (RBS) and went
cap in hand to shareholders to
raise more money.
It is possible this serious turnaround
in the banks' fortunes
could persuade them to accept a
settlement on charges sooner
rather than later.
At least, that's the view of Ian
Allison at claims agency Brunel
Franklin. "The judge's decision
paves the way for the OFT to investigate
the level of charges," he
said. "On May 22, the court is due
to hold a case management meeting,
and the banks are likely to
put in an appeal. Everybody is
waiting to see what happens on
that day."
However, other observers believe
the banks might run up the
flag of "free banking" enjoyed by
most of their customers - and dig
in their heels for a battle which
could take months, or even years.
Simeon Linstead, head of personal
finance at uSwitch.com,
said: "Let's not get too excited.
This is the very first stage in
what could be an extremely long
process which in reality will take
years, not months to conclude."
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