Friday, 23 November 2007


I have been following the progress of the issues relating to unfair overdraft penalty charges that are being imposed by banks closely ever since the subject first started to receive media attention. Like many readers I have a vested interest. It has been well publicised that the Office of Fair Trading (OFT) are bringing a case against the banks because they agree with consumer views that bank overdraft fees are unfair. Whether this action will be in the public’s interest will remain to be seen but the decision to litigate has put paid to any further individual cases being brought to court by individuals who feel the need to sue their banks.

The banking industry could have accepted the OFT’s claims of profiteering by overcharging their customers instead of adopting a largely intransigent attitude that has resulted in legal proceedings being instigated. The eight banks involved are challenging the OFT’s right to interfere in their affairs and claim that it has no jurisdiction. However, the BBC has reported (11 September 2007) that the OFT could drop this highly controversial test case if the banks offered to cut their charges so much, that it would be in the interests of consumers to drop the case. However the fairness of charges isn’t the issue the judge must consider. Instead the Court must rule on whether the Unfair Terms in Consumer Contract Regulations apply to overdraft charges. The OFT believes that they do apply and that is in their power to order the banks to reduce unfair charges. The banks, as expected, disagree claiming their charges to be a ‘core feature of their current account business’ an area that is beyond the jurisdiction of existing regulations. The banks are also adamant that overdraft ‘penalties’ are legitimate service charges that are fair and justifiable. The OFT also argues that the charges are still excessive even if they could be viewed as legitimate service charges.

Since it was known that the OFT were intending to bring this issue to the High Court, some might be forgiven for thinking there has been an impasse. This is not the case. Most financial experts agree that consumers should still formerly place their claims before their banks prior to the court date; although they believe that the banks will no longer entertain paying any settlements. Despite this view some banks are continuing to offer refunds based on prior claims that were sent to them before the OFT announcement was made. Whether these settlements seem fair or not is for the individual to decide. It appears that the situation has now become a gamble split between whether a customer is willing to accept what the bank is offering them now, or wait for the outcome of the court action. If you back waiting for the court’s decision there is the chance that the banks might win the litigation and you will end up getting nothing at all. Even if the banks should lose the first battle, any settlement is likely to be protracted because they are almost certain to Appeal. Should they lose that too then they might even consider appealing to the House of Lords. This will all take a considerable amount of time. The action is due to commence in January but nobody is expecting a result until at least 2010 so even if the case goes against the banks you’ll still be waiting more than two years before your disputed charges are returned. In many cases it simply isn’t worth the gamble. If your bank is still prepared to discuss a refund you might well consider it now rather than risk losing out totally. The worst part about this is that there is no clear cut favourite to win the action so it’s not an easy call to make.

There is some evidence that some banks are still prepared to consider settling despite the OFT action. If your bank has offered to negotiate it might be wise to be flexible. What they are offering is likely to be considerably less than the amount you are demanding but you can always try ‘pushing’ the bank to increase their offer to something more acceptable. Although this will be a compromise you are guaranteed at least some form of settlement immediately but you won’t be able to pursue any balance. The banks are clearly defining such settlements as ‘goodwill’ gestures and they are refusing to accept any liability of overcharging or wrongdoing. This to me seems rather dishonest. My argument to this is based on my belief that no banking organisation would be prepared to offer a substantial settlement if they didn’t believe that they were in the wrong. Banks simply aren’t in business to make goodwill payments out of a feeling of generosity so this has to be dismissed as poppycock! If a bank offers to settle a claim this is tantamount to accepting full liability and pay up rather than risk the possibility of being taken to court. If they believe they are in the right and that their charges can be justified, then why would they offer a refund? The reason could be that they are growing nervous about losing the case with the OFT in the same way that they’ve already lost the majority of cases brought against them by individuals. This has already cost them dearly. The banking industry’s own interim figures reveals that no less than £399million had already been refunded to customers during the first half of this year. The contributions towards this substantial amount of ‘goodwill’ have been met by Barclays (£87m), HSBC (£116m), HBOS (£79m), Lloyds TSB (£36m) and RBS (£81m).

The whole issue seems to have become a bit like Katch-22 and it is a shame that the OFT doesn’t already have sufficient clout to enforce the banks to refund unreasonable penalty charges under existing laws without having the need to resort to the High Court. The banks, no doubt, will view any government agency intervention in their business as being grossly unfair. Isn’t this a travesty when they have acted unfairly towards their clients for donkey’s years? The banks seem to believe they have the absolute right to help themselves to their customers’ funds. As a result their profits have soared to all time highs and their wealthy shareholders have got fatter by screwing their customers. Their greed has no parallel, they have no scruples and they appear to revel in the ruthlessness of their actions. By compounding the debts of customers by adding unfair overdraft charges and subsequently placing default notices on the credit register they are guilty of creating misery and ruin for thousands. Quite frequently default notices are issued because customers have been unable to pay the unreasonable charges that their bank has imposed such action effectively blocks an individual from obtaining credit for a minimum period of six years. This cannot be fair. No other business is allowed to default a customer in this way so why are the banks allowed to do this without first proving their case in court? There can be no justification for charging a customer £35 for ‘bouncing’ a £3 payment when the banking experts have estimated that it costs the bank less than £2 to process the refused item? More often than not it is a case of the banks extorting money from those that are the most vulnerable; those on low incomes or businesses owners that are facing financial difficulties. When anyone is already suffering financially distress, I believe it is totally unreasonable and devastating to impose further monetary penalties on top of debts they already cannot meet. It is easy to understand why personal and business debts are soaring to record highs. The banks blame their customers, charging them with being irresponsible, but in a vast number of cases people fall into financial difficulties for reasons beyond their control. The banks are merely making matters worse. In any case the banks are not in a position to preach considering their record of poor lending to Third World countries and the recent activities of Northern Rock.

Nobody could ever deny that the banks need to make healthy profits but their methods can readily be viewed as scandalous and their profits excessive. They were once regarded as upright, responsible, honest organisations that could be trusted. Mostly they could be relied upon for their integrity and upright behaviour. But, the public perception has widely changed and most would conclude that as an industry the banks no longer enjoy a respectable reputation or meet the needs of the consumer. Their obsession with the ‘bottom line’ has led to justifiable accusations of greed and they have also come in for criticism over their methods of selling a range of associated products that aren’t always in the interests of their unsuspecting clients. If you were to conduct a poll I wonder how many consumers would consider the banks to be honest and trustworthy? When things are going well they are quick to lend money but, at the first signs of danger, they are equally as quick to ‘pull the plug’ in ways that can cause misery and total ruin. The outcome of all of this is that when a customer complains the banks are likely to retaliate by calling in their overdraft and by closing their account. As a consumer, I can only hope that justice will be seen to be done and that customers will ultimately gain from the process.

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