Page last updated at 00:02 GMT, Saturday, 21 November 2009

Banks 'are charging sneaky fees' claims Which?

By Brian Milligan
Business reporter, BBC News

Supreme Court
The Supreme Court is the scene of the latest stage of the case

Banks are still finding "sneaky ways" to make money out of people, the consumers' association Which? has said.

It claims the rate on authorised overdrafts is at its highest level since records began in the mid-1990s.

According to the latest Bank of England statistics, the average overdraft rate is 18.96%, although many of the big banks can charge considerably more.

Which? says that the rate for unauthorised overdrafts has fallen owing to a major court case.

It has accused banks of raising the rate on authorised overdrafts to make up the difference.

"It is like a balloon," says Phil Jones, of Which?. "When you push in one part, it comes out in another."

"So we see that the banks are consistently taking sneaky ways to make money out of people."


Dawn Cunnington, from Kidderminster in the West Midlands, said that when her husband had a few weeks off sick seven years ago, they went slightly overdrawn, and were immediately hit with a £35 charge.

The cost that the banks have to pay for the money they buy in has increased
Eric Leenders, BBA

Over the years the charges spiralled, and she ended up paying over £4,000.

Her official complaint about those charges has been suspended, pending the outcome of the long-running court case. In the meantime her bank has continued to charge her on a monthly basis.

The charges now total more than £5,000.

"It gets you really upset," she said. "You start to get angry then. I phoned the bank, and the only help they could give us was an offer of increasing the overdraft."


Many banks have reduced the rates on unauthorised overdrafts.

On 1 October, the Royal Bank of Scotland cut its charges. On 6 December, the Halifax will restructure the way it charges customers, which will benefit some people with an overdraft.

In relation to high rates on authorised overdrafts, the industry argues that its own costs remain stubbornly high.

The British Bankers' Association (BBA), which represents the banks, is reminding everyone that the cost of borrowing no longer tracks the Bank rate as it once did.

Instead banks have to borrow money on the more expensive wholesale market. The risk of borrowers defaulting is also higher than it was.

"The cost that the banks have to pay for the money they buy in has increased," said Eric Leenders, of the BBA.

Test case

After more than two years of court cases, and appeals by the banks, the Supreme Court will make a significant ruling about bank charges on Wednesday.

At stake are billions of pounds, and complaints from nearly a million bank customers in the UK.

The court is due to decide whether the Office of Fair Trading (OFT) has the right to determine what is, and what is not, a fair bank charge.

If the OFT wins the case, it is due to announce its findings at the beginning of next year.

In theory, the way could then be open for customers like Dawn Cunnington to have their charges refunded.

But if the banks follow their track record to date, they are likely to appeal against any ruling made by the OFT. That could mean a whole new round of legal action, lasting for years.

One government source has told the BBC that the case might therefore continue until 2015 or so.

In which case Dawn Cunnington can expect to be charged a further £2,400 in interest, before the case is finally resolved.

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