What next for bank charge claimants?
The Office of Fair Trading has decided not to pursue its investigation into the fairness of unarranged overdraft fees, following the recent judgment from the Supreme Court.
This news will be very disappointing for thousands of consumers who were looking for guidance from the regulator in the hope it would pursue its legal battle, perhaps under different case law.
Sadly, this really looks like the end for the vast majority of those that had claims for charges sitting in the courts - and for the few who were awaiting the outcome before submitting claims.
Although the regulator believes the way banks have dealt with consumers is unfair, it now has very little power to do anything about it. Some campaigners, however, are claiming that there may be a new line to pursue under section 140 of the Consumer Credit Act, which covers the relationship between lenders and customers.
Under section 140, it is up to banks to prove charges are fair, rather than customers having to prove they are not. Whether this is a possible way forward will become clearer over the coming weeks.
Outlook for claimants
So what do you do if you have a complaint about bank charges?
Basically the same as you did before the OFT test case. You first speak to the bank and raise your complaint. It then has eight weeks to resolve the issue. If the matter is still not resolved after this time, then you can go to the Financial Ombudsman Service.
Importantly, consulting the Ombudsman is free for consumers but banks have to pay £500 towards the cost of the investigation. So the moment you contact the Ombudsman, the bank knows it is £500 down.
You could also get your money back if you qualify under the financial hardship rules.
There are a number of factors, but basically you might be eligible if: you are struggling to meet your financial commitments each month; are not able to meet your basic needs; you are behind with council tax or court fines; you are about to have your home repossessed; or your only income is that derived from benefits.
The future for overdraft charges
The vast majority of people do not go over their overdraft limits, and many will welcome the OFT’s decision as they argue that fighting bank charges put the UK's free banking sector at risk.
But is it really free? We all pay for our banking in one way or another - for example, through low interest rates when we are in credit, massive charges when we are not and through delays of depositing cheques or transferring funds online.
Often moving money between different banks can take between three and five working days to clear. So who earns interest on this? I can tell you it is not you and I.
The banks receive an income of around £2.6 billion every year from unauthorised overdraft charges, but this is expected to decline over the coming years as competition improves, and as political and public outrage takes effect.
In my view, there is more that needs to be done. The key areas I would like to see addressed are:
• Give customers the right to switch off any unauthorised overdraft. This would mean that, if funds weren’t available, the bank would simply not pay the direct debit, standing order or clear the cheque.
• Banks should only permit payments from unauthorised overdrafts when this is ‘responsible lending’ rather than irresponsible. For example, it is irresponsible for a bank to process a payment on an unauthorised overdraft if it knows the customer cannot afford it, and will only racks up charges.
• Overdraft charges need to be more transparent, prominent and easy to understand so customers understand the cost when they sign up for an account.
• Banks should help and support customers plan their finances, instead of milking them for fees. However, as this will cost banks money rather than bring in profit, I really can’t see it happening.
An overdraft is an agreement with your bank that authorises you to withdraw more funds from your account than you have deposited in it. Many banks charge for this privilege either as a fixed fee or charge interest on the money overdrawn at a special high rate. Some banks charge a fee and interest. And other banks offer a free overdraft but impose very high charges for exceeding the agreed limit of your overdraft.
If you’ve have a complaint about a financial service product you have bought but the company you bought it from refuses to resolve your problem after eight weeks, the Ombudsman can help. The Ombudsman will investigate and resolve the matter. The Ombudsman is independent and its service is free to consumers. The Ombudsman may find in the company’s favour but consumers don’t have accept its decision and are always free to go to court instead. But if they do accept an Ombudsman’s decision, it is binding both on them and on the business.