Which? slams banks over hefty overdraft charges

10 Apr, 2006

Consumer champion Which? has issued all current account providers with an ASBO - an Anti-Social Banking Order. The consumer group is incensed at banks' continued practice of charging customers big penalties for straying into unauthorised overdrafts.
It has launched a campaign to help consumers win their money back, as a new survey suggests over one-third of adults are relying on their overdrafts to keep them going.
Doug Taylor, personal finance campaigner at Which? commented: "These charges are nothing but an easy money-spinner for the banks."
In 2004, Which? found that consumers paid a hefty 3 billion pounds in charges for going into unauthorised overdraft.
"We think charges should be fair and reflect the costs involved," Taylor said. "As things stand, someone going a couple of pounds into an unauthorised overdraft will receive a letter from their bank costing them 30 pounds.
"Other cheques and direct debits from that account may trigger additional charges of 30 pounds or more and all this is added to an overdraft facility that already charges a higher rate of interest."
Taylor said it was not unusual for customers to run up charges of a couple of hundred pounds on the back of a few small payments that incur a penalty each time.
"In many cases, customers have a pay cheque going in a day late that would have covered any short term overdraft breach, but in the meantime they have been slapped with a string of penalty fees."
He added that while some banks were marginally worse than others, not one of them was acting as a shining example of how to treat customers.
"The banks have put customers in the position that they must resort to the small claims court with justifiable claims of unenforceable charges. But we would prefer if it didn't come to this and that the banks cleaned up their act or the FSA regulated to ensure charges were reasonable."
There are two ways that bank charges could be deemed unenforceable.
Firstly, under the unfair contract terms law, the bank would have to prove that the charge was in proportion to the costs they have incurred.
Secondly, the law of penalties specifies that banks cannot use "extravagant" charges.
In both cases, the claims court could rule that a string of charges of 30 pounds or more for briefly slipping into an unauthorised overdraft by a small amount, was unenforceable under law.
From a regulatory perspective, the Financial Services Authority (FSA) has responsibility for unfair terms within the financial services sector.
An FSA spokesman said that they looked at the fairness of charges on financial products and services as a matter of course and banking charges were no exception. He would not speculate on whether new regulations on banking charges would be introduced.
The British Bankers' Association denies it makes excessive profits on overdrafts, given the services banks provide.
"The UK market is one of the most competitive in the world and international research shows that UK banks provide extremely good value for customers," a spokesman said.
Last week, price comparison service USwitch said the level of borrowing on overdrafts had grown by almost 125 percent in the last six years.
In a survey of 2,109 people, it found almost 800 regularly used their overdrafts.
"Overdrafts are now an everyday part of life but we are concerned about the reliance people are placing on them," USwitch said.

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