Britain’s high-street banks are going to have to explain why they rake in billions of pounds a year in unauthorised overdraft charges.
The (OFT) announced today that it’s launching a six-month probe into whether the charges are fair. In June this year, Which? calculated that bank customers were paying £4.7 billion each year in default charges.
The OFT’s move follows its ruling in April this year that credit card penalty fees of more than £12 were unfair. Penalty fees are charged, for example, if you pay your bill late.
Since then credit card companies have slashed their charges and the OFT has now turned its attention to current account penalty fees. Banks charge these if you bust your overdraft limit, or if they bounce a cheque, for example.
The watchdog will embark on a fact-finding exercise over the next six months before deciding whether further investigations are needed.
Which? personal finance campaigner Emma Bandey said: ‘We are pleased the OFT has insisted that the banking sector justifies what it charges when customers go over their overdraft limits.
‘In the six months it may take to conduct the “fact find”, customers could pay up to £2.3 billion from default charges, so we hope that banks provide the necessary information quickly.
‘Which? has long since asked banks to open their books to public scrutiny as we feel that default charges should be proportionate and reflect the administration costs involved. They should not be, as they are now, arbitrary figures picked to make the most money out of unsuspecting customers.’
The British Bankers’ Association said: ‘The banking industry welcomes the opportunity to work with the OFT on this fact-finding exercise, but our members remain of the view that the current account charging system is fair and legal. The majority of customers do not pay fees and enjoy free – if in credit – banking, unlike the vast majority of developed economies.’
Many people have successfully won back money from banks by using our online information on banking charges . Consumers shouldn’t be put off challenging their banks while the ‘fact finding’ is carried out.
However, those prepared to challenge their banks should make sure they don’t get caught out by bully-boy tactics, such as the bank closing the account.
Which? advises people thinking of taking on their bank to always open a new account elsewhere before mounting their challenge.