Have you ever felt ripped off by your bank? I’m not talking about the scandal of banker irresponsibility which has helped land us into the deepest recession in living memory. I’m talking about the sense of injustice you feel when you get your statement to discover you’ve been charged outrageous fees for having stepped over an agreed overdraft limit.
If this has happened to you, you’re in good company. Which? estimated that we paid over £4bn in unauthorised bank charges last year, averaging £120 from each one of us. If you go over your limit, even by a few pence, you’ll be slammed with a charge – typically £20-30 – plus a similar fee for every payment, such as a standing order or direct debit, while you are over your limit.
So for anyone who’s not savvy with money, or whose health or circumstances affect their ability to manage their money, this can mount up to an enormous problem. As a result, those least able to handle the situation are the ones who get hammered most.
You would think that our Office of Fair Trading (OFT) should be able to deal with unfair terms of this kind, but no. Last November the Supreme Court overturned a decision by the Court of Appeal that would have allowed the OFT to act. The OFT can rule on ‘core price terms’ like the basic contract you sign up to, but not ‘ancillary terms’ like charges for unauthorised overdrafts.
So we need a change in the law. The new coalition government will, I’m sure, be supportive of this. Vince Cable himself tabled an Early Day Motion last year about it last year. But we do have a very crowded legislative programme to work through.
So I’ve decided to be helpful. Having come up in the ballot for introducing a Private Member’s Bill, I decided to take up the cause. Supported by Which? I will be presenting my Bill to the House on Friday November 12th. Unfortunately it’s the third bill up for discussion on that day, but even if we don’t get to vote on it, I’m hopeful the government will adopt it in the next legislative programme.
It’s not realistic to expect banks to voluntarily stop this licence to print money. We have to take action to redress the balance – so that we again feel they are serving us and not the other way round.
Lorely Burt is MP for Solihull and Chair of the Liberal Democrat Parliamentary Party
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18 Comments
Good luck – and keep up the good work!
I am a bit baffled here. Surely if people don’t wish to pay charges for unauthorised overdrafts … they should avoid going into an overdraft situation. Be responsible for their own actions?
Oh sure, send them to the loan sharks, instead.
My bank’s just informed me that they’ll start charging a flat fee for my overdraft….. On a student account. That’ll take about 2 weeks food money out of each loan payment to cover my overdraft each semester. Hardly fair….. So go for it Lorely! Good Luck!
Banks rely on their customers not knowing where the extra charges are in order to make more profit.
That of course leaves many feeling like they were ripped off.
We saw it with the scandalous misselling of endowment mortgages, which turned out for most people to be a poor deal for them, but a good deal for banks because of the hidden fees.
I have to thank my father and an ethical investments advisor who persuaded me to buy a repayments mortgage at a time when endowments were much more popular.
This shows of course that market forces often do not benefit the consumer, and why we need regulations to stop this kind of exploitation.
My Bank Alliance & Leicester routinely does this and takes out about 30-40 out of my ESA benefits. They are slow to post debits to the account and then charge on top of charges and leave sick and ill persons to manage on ever decreasing funds. Keep up the good work.
something stopping any of you changing banks?
I am in two minds about this. Surely, some overdraft charges (even for authorised ones, let alone for unauthorised overdrafts) are outrageous, and it is a good idea to look into this.
However, banks will try to get that money elsewhere, and I’d prefer them to charge for unautorised overdraft charges (something people can, at least in theory, avoid), rather than to introduce compulsory bank charges – e.g. for cash withdrawals, or even monthly fees for current accounts (life without an account would be arather more difficult, so these fees are much harder to avoid). Of course, banks also mention such measures as a kind of threat to fend off attempts to regulate overdraft fees – but I think we have to take this seriously. There are plenty of coutnries, for example, where smply having an account costs quite a lot, and you pay for most transactions, too. I don’t think we’d want to give them an excuse to go down that route.
Thus, I am all for looking at this, but I think there has to be a holistic approach to looking into the ways in which banks get money out of their customers, just to make sure that some unintended consequences won’t make it even worse for many people, especially those who can least afford it.
Like bonuses, these charges are mere froth on the state-gifted cauldron of banking alchemy that allows them to print money from nothing and charge interest on the debt they create. That is the £100bn annual privilege we should really be collecting on.
The solution to bank charges is easy; open up banking to more competition. It’s a solution to banking alchemy we really need – an end to the privatised issue of debt-based money, or a simple charge on the credit they create.
here is the website of the Coop for those of you who dont like your banks
http://www.co-operative.coop
SMcG: “here is the website of the Coop”
Splendid institution. I remember the days when they were the only bank to offer the kind of “free banking” we all take for granted today. If the likes of Lorely Burt get their way, those days could come back again.
@SMcG, yeah I can’t pay off my overdraft to move banks until I get a job, so I’m kinda stuck since I can’t find a job that’s happy to employ me whilst I’m a student. Those charges also weren’t there when I opened the account, or when I took out the overdraft, they’ve just written to me to inform me that they’ve been added from December.
The Labour trolls who keep going on about how regressive VAT is don’t seem to have much sympathy for the poor in this case. Ever tried to exist on benefits? Ever had late payments/benefits stopped or delayed while changed circumstances are investigated? One of the reasons some people on benefits operate in the ‘black’ economy is because being honest with the authorities means their budgeting gets completely screwed, sometimes with the result that they get hit with punitive bank charges as well (even by the Co-Op Bank) – £15 -30 out of your weekly benefit really is a form of regressive taxation.
Good luck with this. The charges are often usurious and bear no relation to actual costs incurred by the banks.
BTW No-one should imagine that the Office of Fair Trading has anything to do with fairness except by accident. As a senior member of their staff explained to me some years ago, “We are effectively a sort of policeman. What we do is enforce the various laws that cover our patch. Very often we know informally around the office that the law we are enforcing is unfair and will damage the economy – but that is how the law in this area often is”.
In effect, the naming of the OFT owes much to political spin and their work has too often been ‘regulation lite’ based on a clear understanding passed down from the government that any sort of regulation is a Bad Thing. Hopefully this will now change.
There are serious questions about the legality of overdraft charges which are still chugging through the courts.
However beware the law of unintended consequences. The alternatives to charges for unauthorised overdrafts are:
1) Bank charges for all current accounts (the situation until the mid-80s IIRC
2) Banks just refuse to honour any payments which take people over agreed overdraft limits. So once you hit your overdraft limit that’s it
As Hywel says, the law of unintended consequences may be that banks start bouncing cheques and direct debits and the like, which could be even worse news – not only because there can be fees associated with it (your telephone supplier, mortgage company etc may not take kindly to not being paid), but because it can also hit your credit record.
Still, the principle is right – at the moment people with low incomes are often caught with all sorts of charges, and changing bank is not easy (I have done it twice, and neither went smoothly), whereas I never pay anything and get a great deal. I don’t think small fees for cheques and the like would be the end of the world, if the quid pro quo was that banks stopped charging £30 for computer generated letters.
last year the so-called ethical co-operative bank bounced a £1 standing order to friends of the earth and then charged me £30 for the honour?
heres a facebook group I setup http://www.facebook.com/#!/group.php?gid=195287225020
all the banks are at it.
we moved to first direct who have a much better sliding scale of charges. (they still charge £30 to bounce £30?)
Just had a letter from Lloyds. They are reducing charges for unauthorised overdrafts but getting rid of the ( small) interest rate for current accounts.
So good news for people who mismanage their accounts. Bad news for the rest of us.