End is nigh for unfair overdraft charges
Although I very much support account holders who have been charged for going over their unauthorised overdraft, I was quite concerned about how the banks could afford to pay out the refunds if they had lost this case. Some suggest the sum they would have had to cough up would have been around the £24 billion mark.
In addition, the banks receive around £2.6 billion income every year from bank overdraft charges and other current accounts so this is a very great sum of money to lose.
Had the banks lost, another problem could have been the issue around credit ratings marked down through missed payments on loans. This would then have been deemed unlawful. I dread to think of the ensuing litigation.
There is a small chance that the Office of Fair Trading (OFT) can still do something and I hope it is successful. I expect its lawyers will be scrutinising every word, but we will have to wait for its announcement next month to see what it plans to do next.
I believe this is actually the beginning of the end of excessive unauthorised overdraft charges as the banks have already started to cut their fees. There will be more competition from the banks, which will in turn bring down fees. The question though is, to what level?
There will be the odd bank or two that will still try and get away with high charges, but as customers can move banks this will not be a massive problem.
Some will claim the ruling is a good result for the taxpayer, but mainly from those who do not have bank charges to contend with. I understand this to a point, but spare a thought for those who just cannot get out of the bank charges trap. They are actually ‘funding’ our current free banking system.
I feel it’s wrong to expect those who struggle financially to pay for free banking for those who are better off. I’m sure some will argue these people need to manage their money properly, but most have triggers in their lives that start the debt cycle off. These include redundancy, illness or separation and along comes those dreaded bank charges. For some there is just no escape and they were pinning their hopes on the OFT winning the case.
Those who are currently struggling with bank charges should be refunded the difference between what is deemed to be a reasonable cost to the bank, say £12 and the actual penalty applied, usually £38, and this should go back as far July 2001. They should also be offered help and guidance on their finances.
It’s time to put a stop to banks using customers as easy pickings to inflate their profits. They have vast amounts money, some of it public funds, with which they use to beat down the honest and hard-working consumer.
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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.