NatWest and RBS reduce overdraft fees
NatWest and Royal Bank of Scotland (RBS) have broken ranks with their banking peers by cutting the charges levied on customers who go overdrawn without permission.
The banks, which are both part of the same banking group, will reduce their unauthorised overdraft fee from £30 a day to £15 from 1 October. And bounced cheques will now cost customers £5 - a significant cut from the previous charge of £38.
RBS is one of seven banks and one building society that have been fighting a legal ruling that gave the Office of Fair Trading (OFT) the power to potentially cap overdraft charges. Although both the High Court and the Court of Appeal found in favour of the OFT, the banks have persisted with their battle and the House of Lords is now considering the case.
However, despite the banks’ insistence that these charges are fair, the step-down by RBS represents something of a U-turn.
The decision to reduce unauthorised overdraft charges was announced by the banking group’s new chief executive, Brian Hartzer.
"This is good news for customers, not least because the fees for unarranged borrowing have been an area of ongoing concern for them,” he said. “As we look ahead there are many issues to consider, but we thought it was time to move this particular customer concern forward by cutting our charges.”
RBS is 70% government-owned following its bail-out by the Treasury, and the bank has already made a commitment to increase the amount it lends to small businesses and borrowers.
Hartzer added: “We are changing what we do as a bank and the way we do it. This announcement is one more example of the determination we have to support our customers.”
It is estimated that banks rake in more than £2 billion each year from overdraft charges. However, since 2005, a wave of customer discontent has led to banks being forced to offer refunds.
In 2007, £782 million was paid out by banks to disgruntled customers, and in May last year, HSBC warned investors it may have to refund customers £300 million if the OFT does decide its overdraft charges were too high.
However, since the start of the legal case in 2007, the majority of claims have been frozen. The bank charge refund waiver is currently set in place until January 2010, but this could be extended further if the House of Lords does not give an answer to the banks’ appeal before then.
Peter Vicary-Smith, chief executive at Which?, has welcomed the move by RBS and NatWest.
But he adds: “If RBS and NatWest truly want to get back in their customers' good books, they should admit defeat in the bank charges test case and repay the millions of pounds Which? believes they've been unfairly taking from their current account holders for years."
There are now hopes that other banks may follow in RBS and NatWest's lead.
“As the first provider to step up to the plate and do the decent thing before the outcome of the test case, we eagerly await the other big banks to follow suit," says Louise Bond, personal Finance expert at uSwitch.com.
But there are also concerns that banks may try to recoup thier losses by hiking fees elsewhere. "Only time will tell if this new charging structure does what it says on the tin without carrying any nasty hidden surprises for customers," says Bond.
"We really hope that these providers are not planning to recouped this revenue from far less obvious avenues which could mean that all of their customers foot the bill for the lost income.”
New RBS/NatWest charges
* Bounced cheque, and rejected standing order or direct debit payments reduced from £38 to £5. This is capped at £50 per month; previously this was £114 per day.
* Fee on unarranged overdraft reduced from £30 to £15. This is capped at £90 per month.
* Guaranteed card payment fee reduced from £35 to £15. This is capped at £90 per month; previously this was £105 per day.
* Maintenance charge reduced from £28 to £20.
* Unarranged overdraft interest rate reduced to 19.24% EAR.
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.
An account opened with a clearing bank (few building societies offer current accounts) that provides the ability to draw cash (usually via a debit card) or cheques from the account. Some pay fairly minimal rates of interest if the account is in credit. Most current accounts insist your monthly income (salary or pension) is paid directly in each month and they offer a number of optional services – such as overdrafts and charge cards – which are negotiable but will incur fees.
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.