Three banks focus of OFT investigation
The Office of Fair Trading (OFT) has announced it will focus on just three banks in its ongoing investigation into the fairness of overdraft fees.
The announcement comes after the House of Lords gave the banks permission to appeal two previous legal rulings, which effectively gave the OFT the right to assess the fairness of these charges.
The OFT brought its case to the High Court in 2007 against seven banks and one building society, Nationwide. Although the High Court ruled that it is within the organisation's remit to investigate the fairness of bank charges - paving the way for it to potentially cap fees - the banks appealed this decision. The Court of Appeal also found in favour of the OFT, but the issue is now set to drag on for longer with the House of Lords and potentially the European Commission becoming involved.
Meanwhile, The OFT continues to carry out its investigation into current overdraft fees, with a conclusion likely to be reached later this year. However, it now plans to "streamline" this by focusing on the terms of three banks in particular - Lloyds TSB, HSBC and Clydesdale. It says these three firms provide the best representative selection of all unarranged overdraft charging terms, and the outcome will therefore be relevant to the assessment of other banks' terms.
In a statement, the OFT says: "It should not be assumed that the OFT is more or less likely to find the terms of these banks' unfair than those of the other banks. The investigation into the other banks' terms is merely on hold and the OFT has stressed that no banks' terms have been given a clean bill of health."
The move has been welcomed by banking experts. Kevin Mountford, head of banking at moneysupermarket.com, says: "Regardless of whether the three brands chosen are truly representative of the market, any efforts to move this forward are welcome. I hope this marks the next step in resolving the overdraft charges saga, which has dragged on far too long."
Louise Hanson, head of campaigns at Which?, adds: "We're pleased that the OFT is doing whatever it takes to bring this saga to an end as quickly as possible. We welcome its assurances that all the banks are still within its sights and we remain confident that the unauthorised overdraft charges of all banks will be found to be unfair."
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.
This is a mutual organisation owned by its members and not by shareholders. These societies offer a range of financial services but have historically concentrated on taking deposits from savers and lending the money to borrowers as mortgages, hence the name. In the mid-1990s many societies “demutualised” and became banks. One academic study (Heffernan, 2003) found demutualised societies’ pricing on deposits and mortgages was more favourable to shareholders than to customers, with the remaining mutual building societies offering consistently better rates. In 1900, there were 2,286 building societies in the UK; in 2011, there are just 51.