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Last Updated: Monday, 9 October 2006, 15:50 GMT 16:50 UK
Banks 'raising business charges'
Overdue sign
Banks have raised overdraft charges for businesses, Moneyfacts says
Banks have been increasing their charges for business customers who run up unauthorised overdrafts, financial data company Moneyfacts says.

The firm said four years after the Competition Commission criticised banks' small business services, there was little sign of falling charges.

Seven of the banks that now dominate this market have since raised their charges for breaking overdraft limits.

The banks said firms which kept on top of their finances would avoid charges.

The market, they said, was competitive - but Moneyfacts said there was little evidence that competition had led to any reduction in charges.

Higher fees

In 2002, the market for offering current accounts to businesses was dominated by the then big four High Street banks - Barclays, HSBC, Lloyds TSB and Royal Bank of Scotland-NatWest.

Since the 2002 Competition Commission investigation into unfair business bank charges, there has been a marked increase in many unauthorised fees
Lee Tillcock, Moneyfacts

Examples of higher fees cited by Moneyfacts include Barclays charging customers 30 instead of 12 for breaching an overdraft limit, and Lloyds TSB raising its charge for each breach of a borrowing limit from 10 to 15.

Some of the other banks who now operate in the small business market, such as the Abbey, HBOS and the Co-op bank, have also raised their fees.

The Abbey's charge has risen from 15 to 30 per debit, plus an extra 15 per month on top.

The Co-op bank's daily charge for breaking an overdraft limit has gone up from 7.50 a day to 8.50.

"Since the 2002 Competition Commission investigation into unfair business bank charges, there has been a marked increase in many unauthorised fees," said Lee Tillcock of Moneyfacts.

"And (there is) so far little evidence of what the investigation set out to achieve - namely increased competition and reduction in day-to-day banking charges."

Competition report

In 2002, the UK's biggest banks agreed to adopt new polices towards their business customers after a highly critical report was published by the Competition Commission.

The Commission found that the then big four formed a "complex monopoly" that restricted price competition and choice for small business customers.

Following pressure from Chancellor Gordon Brown they agreed to offer:

  • interest on their current accounts of at least the Bank of England base rate minus two and a half percentage points,
  • a current account free of money transmission charges, or
  • a choice between the two.

Earlier this year, the Office of Fair Trading (OFT) carried out a review of how the banks had been behaving since they gave those undertakings to the Competition Commission.

The OFT's findings are expected to be published early next year.

Simon Briault of the Federation of Small Businesses said: "Our general concern is that the four big banks do have a virtual monopoly of small business banking - so they have less incentive to give a better service or push prices down."

But in response Stewart Dickey, director at the British Bankers' Association (BBA) told BBC News that business customers benefited from healthy competition.

"Competition is more intense than ever," he said. "Firms have a choice of who to bank with and any account fees are set out upfront.

"It is up to business, though, to discuss their borrowing needs with their bank rather than go into unauthorised overdraft. Charges are only levied to reflect a genuine cost to the bank of the customer going into unauthorised overdraft."

The last few years have seen regulatory scrutiny of almost every source of profit for the banks.

So far they have been forced to cut late payment fees for credit cards, alter the way store charge cards are sold, and are currently undergoing OFT investigations into overdraft charges on personal current accounts and the cost of buying payment protection insurance.


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