Bank Charge News

First Direct is to stop paying interest on its 1.2 million current accounts patrons in another step nearer towards the end of free banking while in credit, reports Myra Butterworth

Several other banks are anticipated to reveal new charge tariffs for current accounts soon, with Alliance & Leicester expected to announce changes to its tariffs in the next few days.

First Direct, which is part of the HSBC Group, offers two current accounts – the Cheque account and Bank account, which pay 0.1 per cent and 2 per cent gross interest a year respectively. But from November 1, First Direct will no longer pay any credit interest. Instead, it wants to use the money it presently pays in credit interest to give patrons the chance to earn “serious” interest on higher interest savings accounts.

It is launching a new savings account paying 8 per cent interest, fixed for a year, for savers putting away between £25 and £300 a month. Savers can only withdraw their money after 12 months. If they want to access their money before the end of the 12 months, they can close the account but will receive First Direct’s standard Savings Account interest rate of 4.00 per cent AER variable.

Chris Pilling, First Direct’s ruler executive, said: “A staggering 96 per cent of our regulars told us that credit interest was not an important factor in choosing to bank with first direct. And almost 70 percent didn’t know the rate of interest on their current account.” He added that the banks wanted to use the money it presently pays in credit interest to give patrons the chance to earn serious interest on higher interest savings accounts.

Several other banks are anticipated to announce changes to their current accounts in the coming weeks.

Sue Hannums, of autonomous financial advisers AWD Chase de Vere, warned: “Patrons have to be practicable that we are heading towards patrons having to pay for the running of their current accounts.”

The First Direct announcement was made ahead of a test case about allegedly unfair bank charges which was launched by the Office of Fair Trading and due to be heard in January.

The Office of Fair Trading (OFT) has finalized it could drop the High Court test case over “unfair” overdraft charges if banks put forward a suitable compromise.

The consumer watchdog said it would consider any potential proposals which could lead to next year’s case being scrapped if the plans were in the most excellent interest of clients.

The OFT has publicized banks are raking in between £2 billion and £3.5 billion a year in fees charged when customers and businesses go over their authorised overdraft limits.
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It is unclear how much of this is profit because the OFT is still in the early stages of analysing data supplied by banks under its investigation of the charges.

It is also yet to finalise its own calculations of how much it believes it costs banks to administer accounts in the red by more than the agreed levels.

An OFT spokesman stressed it had not yet had any discussions with banks over a possible out-of-court compensation ahead of the case, which is due to decide whether the OFT has the power to rule overdraft charges unfair.

The Argus has been providing template letters for bank customers, including businesses, to reclaim charges.

Last week, Lloyds TSB became the first bank to cut its unauthorised overdraft charges and reduce its penalty interest rates.

HSBC also announced it would alert regulars withdrawing money from its cash machines if the amount would see them exceed their overdraft limit.

Other banks have yet to follow Lloyds’ lead. Barclays said it had no actual plans, although it was reviewing the fees “given the current climate”.

Tens of thousands of regulars have complained about the charges, with many taking their bank to court. Financial results from Britain’s biggest banks last month revealed £400 million was given in reclaimed overdraft fees and interest charges in the first six months of the year alone.

Richard Ardley, 41, of Priory Road, Eastbourne, has simply recovered £3,150 charged on his NatWest account. He contacted no-win no-fee firm FRL to reclaim what he thought were unfair charges.

Gary Brown-colored, managing director of FRL, said: “Many people are experiencing real difficulties when trying to claim back disputed charges themselves. We’ve had thousands of consumers appoint us as a result.

“Many are put off pursuing their claims because of the financial implications, concerns for their future banking arrangements and prevalently as a direct result of them being given very short shrift from their banks.”

The Office of Fair Trading confirmed it could drop the High Court test case over “unfair” overdraft bank charges if a suitable compromise is put forward by banks.

The consumer watchdog said it would consider any potential proposals, which could lead to next year’s case being scrapped if the plans were in the best interest of customers. (more…)

Credit card firms have raised average balance transfer fees for switching debts by 0.5 per cent to 2.67 per cent in the year since they were forced to cut charges by regulators, according to new research from MoneyExpert.com…

That compares with 2.1 per cent average in September 2006 as card firms bid to earn back the cash they’ve lost from regulators forcing them to cut back fees for missing payments and going over credit limits, the independent financial comparison website’s research shows.

Currently 160 credit cards offer the chance to transfer balances with fees ranging from 1.75 per cent to three per cent. Around 90 cards on the market charge a flat three per cent fee for balance transfers. That means someone transferring a balance of £5,000 will have to pay £150 in fees.

MoneyExpert.com is urging customers switching cards to cut the interest rate they’re paying to focus on fees as well as the new lower rate. The Office of Fair Trading told credit card companies to limit default charges to £12 from August 2006.

Sean Gardner, Chief Executive of MoneyExpert.com:

“What goes down must go up seems to be the experience in the credit card industry.

“Card firms have lost out since they were forced to cut so-called default charges so now customers are losing out as balance transfer fees increase.

“Analysts talk about the so-called water bed effect - cuts in one area mean increases in another area. And that has been the experience for credit card customers with new charges appearing to replace the old charges which have been cut.

“Customers should of course still switch credit cards in search of better deals and particularly if they are paying standard rates of 16.9 per cent or so on debts. But they’ve got to remember there is a cost involved and factor that into any savings they make.”

Just 34 cards charge balance transfer fees of two per cent - they include ones from NatWest and Royal Bank of Scotland and Stroud & Swindon Building Society.

And only one card currently charges a balance transfer fee of less than two per cent - Capital One’s 1.7 per cent balance transfer fee on its Platinum Mastercard which charges 9.94 APR on purchases.

Bank Charges are due to be cut
The bank hopes fewer customers will get a nasty surprise
Lloyds TSB has become the first High Street bank to cut its charges for unauthorised overdrafts in the face of a continuing customer revolt.
The bank, one of eight facing a High Court test case next year, will introduce the charges on 2 November.

Lloyds will cut its interest rates for unauthorised borrowing by about a third and charges for going into the red and bouncing cheques will also be reduced.

Other High Street lenders may now also cut their charges, analysts said.

Richard Hunter of stockbrokers Hargreaves Lansdown said that Lloyd’s move was probably the “thin end of the wedge”.

Refunds

Earlier this year, the bank revealed that it had had to refund £36m to customers in the first half of 2007, after they threatened to sue for the return of allegedly unfair charges on their unauthorised overdrafts.

 BANK REFUNDS IN 2007
Barclays - £87m
HSBC - £116m
HBOS - £79m
Lloyds TSB - £36m
RBS - £81m
Source: bank interim results

Between them, all the High Street banks and building societies have returned an estimated £570m in the same period.

Lloyds TSB said, however, that its decision to reduce the cost of running into the red for its current account holders was simply a response to consumer feedback, and not an attempt to anticipate the outcome of next year’s test case with the Office of Fair Trading.

“We want to help our customers avoid accidentally slipping into the red and are giving them the tools to do just that,” said Ian Larkin of Lloyds TSB.

“We understand that it can sometimes be difficult for customers to keep tabs on their account and we want to make it easier,” he added.

Lower charges

Instead of charging customers £30 a day if they go into the red without permission, the bank will now charge £15 a month and then between £6 and £20 a day on a sliding scale, according to the size of the overdraft.

Its charge for bouncing a cheque, standing order, or direct debit is going down from £35 to £20.

And the interest rate applied to the unauthorised borrowing will be cut by about a third to bring it into line with the bank’s interest rate for authorised borrowing.

The bank believes that most of its customers who go into the red do so accidentally.

So any customer in this position will given until 3.30 pm that day to get in contact with the bank and make up the shortfall, thus avoiding any charges at all.

To help them do this the bank is offering an extra text message service, which will alert customers if they are within £50 of their overdraft limit, or if they have actually gone over it.

“Customers who do accidentally go over their limit, will be better off as they have the chance to top up their account and get themselves back on track,” said Mr Larkin.

Scepticism

The move by Lloyds TSB was greeted with scepticism by the Consumer Action Group (CAG), which has been leading the customer revolt against bank charges.

Marc Gander of the CAG said the revised charges were still excessive.

“I think they are still well over the top,” he said.

“On the basis that the real cost of sending a letter or bouncing a cheque is about £2.00, then the mark-up is still very high.”
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The Office of Fair Trading (OFT) has filed at the high court details of its case against unauthorised overdraft charges paid by bank customers.

The particulars of claims will be made available on the OFT website while the watchdog continues its investigation into the legality of penalty charges levied by banks against customers who exceed their overdraft limits.

The documents examine whether or not the fairness test in the Unfair Terms in Consumer Contract Regulations applies to these overdraft charges.

A court case, beginning next year, will examine this point of law after the OFT’s market study into the current account market is published in December.

A Sick woman is outraged at being clobbered with £300 in bank charges in just ten days.

Lydia Williams was hit with the fines as she bought essential items during a recent bout of sickness.

Miss Williams, from Southdown, has been on sickness benefit for three years with a digestive disease.

She had to stop working for BHS, where she was on a management scheme, in 2004 due to ill health.

For three years she has carefully balanced her accounts, refusing to increase her £100 overdraft limit to make sure she kept on top of her finances.

But three weeks ago, when her illness became worse, she had to venture out to buy some essentials.

“It was small things, like milk and bread,” she said.

And as the cash machine nearest her had been vandalised, she was unable to check her balance.

She spent £1.30, which put her over her £100 limit. Her bank Halifax then landed her with a £30 fine.

Unaware she had gone over the limit, she then made a series of small transactions on other essentials, the largest bill coming to £16. And every time she was fined another £30.

Over the course of around ten days, she clocked up £300 in fines - for spending some £50.

“They shouldn’t be treating people like that,” she said.

“I’m really angry. It’s ludicrous. “I’ve told friends, and many of these are friends who are working, and they’re so angry.

“They’ve had money taken before but not to the extent of £300 in ten days.”

When she arranged to meet Shelagh MacLeod, manager of Halifax in Southgate, Miss Williams was sent a text message reminder.

“I got this long text detailing time, location, branch.

“How much did it cost to do that when they could have texted me to say I’d gone overdrawn?

“I know it’s a business, I know they’ve got to make money, but doing this is wrong.

“They shouldn’t charge people like myself - genuine cases - and even people working.

“How can they justify taking so much?”

Bank charges have been a bone of contention across the UK, with many individuals taking banks to court to claim back penalties incurred when going overdrawn.

Last year a Scottish law centre supported by Citizens Advice in Scotland drew up a letter which challenged the right of banks to charge £30 for going overdrawn without permission or missing a credit card payment date.

Lawyers claimed charges at that level break the Unfair Terms in Consumer Contracts Regulations 1999, which say consumers must not be charged “a disproportionately high sum”.

This was disputed by chief executive of the British Bankers’ Association (BBA), Ian Mullen, who said banks were not charging customers more than the actual cost.

A spokesman for Halifax said: “We wrote to Miss Williams on August 20 informing her that, since we have refunded six charges in the past 12 months, we cannot authorise any further refunds.

“However, if Miss Williams is unhappy with this response we have previously provided her with details of our complaints procedure and the help that the financial ombudsman service can provide.

“We examine all complaints on an individual basis and would advise any customer who has concerns about charges to contact their bank to discuss the options available to them.”

Miss Williams said she didn’t understand the response from Halifax, stating she had only been charged twice in the past year.

She added: “It’s almost like a punishment.”

It has been declared that over the last 6 years, bank customers who have been charged fees have paid an average of £742 - this figure includes fees such as unpaid direct debits, bounced cheques and unauthorised overdrafts.

The research comes from online interviews with more than 4,000 customers by polling company YouGov for uSwitch, the online comparison service. The banking industry is denying the charges and banks’ legal teams are getting ready for a High Court showdown in early 2008 that will decide whether they have a legal right to deduct the charges.

The Office of Fair Trading is also investigating bank charges but has postponed its report until after the High Court ruling.

The research established that the most aggressive of the ‘big five’ High Street banks is Lloyds TSB, where the average customer will have paid £800 over the lat 6 years but this is minimal compared to Abbey, where the average charges have been £1,376, or £230 a year. Approximately 1 customer in 20 has been charged at least £2,500 across all banks – this more than £1 for every day they held their account.

A spokesperson for uSwitch.com highlighted that these charges have provided a rewarding income for the banks, totalling £8.6bn for the big five in the last 6 years. Consequently, if the result of the test case is not in the banks’ favour, this income will be missed.

However, a spokesperson for the British Bankers Association (BBA) said the uSwitch.com figures were misleading and to describe the industry in this way is wrong.

High fees are expected to cause larger than usual numbers of people to switch their current accounts between banks in the coming months, a price comparison expert has claimed.

Sean Gardner,  made the prediction as his website published research showing the average one-off overdraft mistake costs £44.98.

The Office of Fair Trading (OFT) has capped credit card charges at £12 but no such barrier has been put in place for current accounts, where research shows total fees range from £25 to £67.

Although a test case challenging the legality of the bank charges is underway, an outcome is not expected to be reached until next year.

“Some people might think that their bank charges are on the verge of being reduced or scrapped following the recent OFT investigation and the glut of claims. But the court case continues and the charges remain,” Mr Gardner explained.

“With fees as high as they are, and with uncertainty around charges likely to remain well into next year, we anticipate an even greater number of people will swap banks in the coming months,” he conclu

31/08/2007

Banks are set to make an estimated £20.5 million in interest while the Office of Fair Trading (OFT) run a test case against Britain’s high street banks, uSwitch.com has revealed.

Last month, the OFT announced a High Court test case against Britain’s high street banks to clarify the legality of bank charges, entering into an agreement with eight of Britain’s biggest banks to resolve the issue. Those banks include Abbey, Barclays, Clydesdale Bank, HBOS, HSBC, Lloyds TSB, The Royal Bank of Scotland, NatWest and Nationwide Building Society.

And until the test case takes place on 14th January 2008, the Financial Ombudsman Service (FOS) has frozen any outstanding claims it was dealing with and the Financial Services Authority (FSA) has given banks the option to freeze any unresolved claims until a decision is reached at the High Court.

Over the last six years, 16.8 million current account customers have been hit by bank charges – swelling the banks’ coffers by a total of £12.4 billion. In many cases, the amounts charged were actually illegal. To date, banks have refunded £2.6 billion to just over 3.8 million customers – an average refund of £686 to every successful claimant. But that’s only a drop in the ocean compared to the £12.4 billion they have over charged in the last six years. Bank charge victims paid out an average of £742 in charges over the last six years - Abbey customers paid almost double this amount (£1,376) compared to just £719 for HSBC and £450 for First Direct.

In the past six years, Lloyds TSB has raked in £1.932 billion, more money than any of the other ‘big 5 banks.’ It has the largest share of the current account market (14.8%) but has coughed up the lowest amount in refunds to its customers; just £36 million in the first six months of 2007 – HSBC with a market share of just 10.9% has paid out the most at £120 million.

But it could have been much worse for the banks. New research from price comparison site uSwitch.com reveals that the ‘big freeze’ on bank charges introduced last month will result in almost one million claims, worth a staggering £713 million, being put on hold. By keeping this money from consumers, these frozen claims will net the banks an extra £20.5 million just in interest over the next six months while the OFT prepares its case.

“Legal clarity on bank charges is long overdue,” says Mike Naylor, Personal Financial Expert at uSwitch.com. “The OFT has already sent out a clear message that it does not consider default charges to be a legitimate source of revenue. In light of the banking industry’s refusal to change its practices the issue is now set to be determined once and for all by the courts.”

He added that for consumers, the impact of the OFT’s test case against bank charges could extend far beyond the current account market. The outcome of the legal battle will establish a clear benchmark for the banking industry on the legality of penalty charges, and the same principles could then be applied to penalty fees for other financial products, such as mortgages.

“One thing is for certain – past experience has taught us that leaving the banks to do the right thing of their own accord is a recipe for disaster,” added Naylor. “In the meantime, those consumers who have recently received a settlement offer from their bank should think very carefully before they accept it, as once the offer is accepted, it is unlikely that they will be able to make any further claims.”