Concern At New Current Account Charges
A consumer group has voiced its concern about the fees and charges attached to a new breed of current account.
Some banks use cash bonuses to entice customers to sign up, but overdraft charges can be as expensive as £5 a day.
Which? said it believed banks were planning to end free banking if they lost their landmark battle over charges with the Office of Fair Trading (OFT).
The British Bankers Association said the accounts were simply the product of a competitive marketplace.
Earlier this month, Halifax Bank of Scotland launched its Reward Current Account, which offers a monthly cash bonus of £5 if £1,000 is paid in during the month.
However, if a customer goes overdrawn, even with a prior agreement, it will cost them £5 a day for an unauthorised overdraft.
A similar current account from the Alliance and Leicester is offering new customers a £100 bonus just for signing up.
Again, the unauthorised overdraft costs £5 daily.
Also becoming more common are so-called packaged deals.
Two have been launched by the Abbey, offering discounts and free insurance in return for a flat fee of £15 a month.
An Abbey spokesman said: “There is no connection whatsoever between us launching packaged accounts and the end of free banking.”
Referring to the two accounts that charge a fee, he said: “Added value accounts such as these can be great value – but only when customers actually use the benefits.
“Our accounts have been designed so that the benefits are relevant to the needs and lifestyles of our customers and they can maximise the value they get from their account.”
Phil Jones, head of money research at consumer group Which?, said a new trend was developing while the OFT inquiry into the legality of bank charges rumbled on.
“Well it seems like a bit of a coincidence that while this court case is going on – and it looks like the banks are going to lose and have to repay consumers what they’ve unfairly charged them – that they are actually introducing a whole range of accounts with different charging structures.”
But the British Bankers Association dismissed this claim as nonsense, saying accounts like these aimed to attract customers in a competitive marketplace.
Brian Capon, assistant director of the BBA, said cash bonuses were simply part of a bank’s attempts to gain an advantage.
“With the interest rates we’ve got at the moment, which are quite flat, the banks are looking to get A competitive edge… so really it’s to have that little bit of something [extra], that unique selling point.”
Some MPs however say it is a worrying development on the part of the banks and are urging them to spell out the true cost of these deals when selling them.
“If there is the slightest doubt on transparency, then they are laying themselves open to charges that these costs are hidden,” said John McFall, chairman of the Commons treasury select committee.
“The lesson for the banks, after the debacle of recent years, is that they cannot get away with hidden charges… so let them be transparent, let them be open and honest with consumers about what they are letting themselves into.”
Deadline Set On Unfair Bank Charges Case
A High Court hearing to decide the Legimacy of bank overdraft charges should now start before the end of the year.
The Office of Fair Trading and the eight major banks agreed the timetable under pressure from a High Court judge.
Earlier, Mr Justice Andrew Smith allowed the banks to appeal against his first ruling last month that the OFT has jurisdiction over the charges.
If that appeal suceded, then any separate decision on fairness would be made redundant.
Customer Wait
Last month’s ruling by Mr Justice Smith was a victory for the OFT, which has been seeking legal confirmation that it can rule if bank charges are fair or not.
The banks have been keen to oppose this to protect the estimated £3.5bn a year of income they generate from charging customers who go overdrawn without permission.
Under pressure from hundreds of thousands of customers suing them for the return of their overdraft charges in the county courts, banks agreed to a High Court test case in two stages.
The first was on the authority of the OFT under consumer contract regulations. The second will be on the fairness of the charges themselves, which the OFT has been investigating since April 2007.
“The judge has indicated he wants the OFT’s investigation to be wrapped up quickly, and that is a very positive move for consumers waiting in the wings,” said Chris Warner, a lawyer for the consumers’ association Which?
“But the banks are appealing and it will be some time before a judgement is issued in that hearing and so consumers are still some way away from getting their money back.”
The banks’ appeal is likely to be heard this autumn, but if either side then takes the issue to the House of Lords, the OFT’s jurisdiction in the matter is unlikely to be settled until next year at least.
Ever Since the two sides first agreed this long process of litigation last July, tens of thousands of claims for the refund of bank charges have been frozen in the county courts.
Earlier in the course of the High Court case management conference, Mr Justice Smith expressed his discontent at the OFT’s initial statement that it had no idea when its investigation would be completed.
“While the investigation is going on, we are asking the county courts to keep the litigation on hold,” he said.
“How long are they expected to wait?”
Later, however, the OFT said it would share its initial findings with the banks in mid- to late July.
The regulator and the banks agreed that if they could not agree on a fair level of charges, the issue would go to the High Court before Christmas for a ruling.
For the time being, unresolved cases before the county courts and the Financial Ombudsman Service will stay on hold.
“I don’t think this position should change,” said the judge.
“The reasons that these actions should not proceed seem as strong as they were, and will remain so until any appeal by the banks is resolved,” he added.
Help Placing Your Claim
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