Banks' profits '£2.5bn a year' from overdraft feesOFT to report soon on unauthorised overdrafts

08 July 2008

Money

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The UK's major banks make £2.5bn a year in profit through unauthorised overdraft charges, the competition watchdog is expected to reveal this month.

The Office of Fair Trading (OFT) is due to publish its market study into current accounts and unauthorised overdraft charges later this month in which it will put a figure on the amount made by banks from the charges for the first time.

The publication of the study follows the OFT's recent High Court victory on the issue of unauthorised overdraft charges, which paves the way for a second hearing to decide whether the charges are unfair and what a fair charge should be.

Appeal

However, the banks have appealed against the judgment, and the second hearing will be delayed until this is settled.

The OFT is expected to say in its market study that the eight banks involved in the court action made £2.5bn through unauthorised overdraft charges in 2006.

The report will also show that average daily overdraft balances were £600m during the year.

Reasonable charge

It had previously been estimated that banks made between £2bn and £3.5bn a year through the charges.

The watchdog is also expected to say what a reasonable charge for the service would be, as well as looking at how transparent the charges are and how easy it is for consumers to switch banks.

A spokeswoman for the OFT confirmed that it was due to publish a market study later this month, but declined to comment on the speculation regarding its contents.

Unauthorised overdraft fees

Unauthorised overdraft fees can be as much as £35 for a single bounced payment, although some campaigners claim the cost to the banks could be as little as £2.50.

Annual results for the major high street banks show they have so far paid out more than £559 million in refunds to customers who complained about unauthorised overdraft charges.

But the actual total will be higher as both Abbey and Nationwide Building Society declined to disclose how much they had refunded.

Refunds

It is thought the banks could collectively face a total bill of more than £1.1bn from refunds, at a time when they are already under pressure from the credit crunch.

They have warned that if there is a change to the model of how they construct their fees for the services they provide, there is bound to be a knock-on, such as monthly account fees or charges for every transaction carried out.

A spokeswoman for the British Bankers' Association said: 'Banks believe their fee structure is clear and obvious because they make it clear in their terms and conditions when they write to customers.

'It is much better for customers to notify their banks in advance, then they will not be charged.'

Banks in the case

The banks involved in the case are Abbey, Barclays, Clydesdale, Halifax Bank of Scotland, HSBC, Lloyds TSB, Royal Bank of Scotland Group and the Nationwide.

The banks were back in court yesterday for a second hearing over whether their historical terms and conditions were written in clear and plain language.

This hearing will potentially pave the way for people to reclaim charges going back six years in England and five years in Scotland if the court later rules that they are too high.

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