Thursday, 24 April 2008

on bank charges

Today the test case to decide whether or not the OFT can investigate whether or not bank charges are excessive, based on contract law was decided.
The judge ruled in favour of the OFT, thus allowing an investigation to go ahead on bank charges based on the above contract law description, it does however say nothing about fines. As the moneysavingexpert states,

Banks should only impose charges which are in proportion to their costs.
This is because under ‘breach of contract’ laws, the
charge should not
exceed the cost
of the breach.


Yet go beyond your overdraft limit or have a
cheque or direct debit payment bounce and the banks charge a penalty of up to
£39 a time – even if you’re only £1 over the limit. Yet all it has to do is send
a computer-generated automatic letter with a franked stamp. A report by a
Professor of Banking estimated this costed [sic] only between £2.50 and £4.50.
And this was being generous.
Plus a second element of law says if the bank
is ‘fining you’ for going over the limit, and this fine is too high, then under
the law of penalties this is ‘extravagant’.

The judge has also made it clear that he has not ruled that bank charges are unlawful, that is up to the OFT to decide. He himself thinks that bank charge notices are perfectly legible.

The implications of this test case could be quite severe. The banks make £3.5bn from bank charges, mostly from those on lower incomes. To recoup this loss the banks could start levying a charge on having bank accounts, we are after all in the middle of a ‘credit crunch’ (am I the only one who has not been affected by this? The media would have you thinking the sky was falling).
A new “acceptable” charge level could be set but this would effectively mean that all previous charges would still have to be refunded at a cost to the banks.

Interesting times ahead, apply for a refund using help from the
moneysavingexpert.

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