News that HSBC paid out £116m to customers claiming unfair overdraft charges in the first half of 2007 alone, came as a surprise to customers and the banking sector alike.
The figure is far higher than expected - the most recent estimate by analysts at Credit Suisse for the banking sector’s liability in the first half of 2006 was £200m . As HSBC represents 14 per cent of the UK current account market, the bill for the whole of UK banking sector in the first half of 2007 could be as high as £1bn.
But with the issue due to be settled in the courts, (following last week’s announcement that the OFT will bring a legal action against nine of the UK’s largest high street banks), both sides have agreed to a temporary truce. All claims that are currently in progress will be put on hold, pending the outcome of the court hearing.
So where does all this leave the banks and their customers?
Clearly it was in everyone’s interests that a legal precedent be set to settle the issue once and for all. The time and cost of dealing with thousands of individual claims was causing chaos at the banks and in the county courts.
If the judge hearing this case rules against the banks, the cost of meeting all claims will be horrendous, but causing only short term damage to banks’ balance sheets. The banks are accountable, after all, to their shareholders and will simply recoup their losses elsewhere.
Even if customers lose this case, I doubt whether the status quo ante will remain in place. After the emotion that this issue has caused over the last year, I doubt whether the banks will continue that to penalise delinquent customers to benefit their solvent ones.
The start of the change in how banks charge their customers is apparent for all to see. First Direct set the ball rolling in March with the introduction of a £10 a month fee on its current account. Lloyds Bank has just informed its Plus Account customers that it will only pay interest on credit balances of £2,500 from the end of August, rather than £5,000 as at present.
Other banks are encouraging customers to switch to ‘premier’ current accounts, which typically charge £10 a month or more, for a range of ‘free’ extras such as free travel and roadside insurance.
Another source of extra revenue is foreign currency transactions, where banks have been quietly upping their charges on both cash withdrawals and credit card transactions.
Defaqto head of banking, David Black, reckons that cheques will be the next target for the banks to make a charge for.
While the fees charged to delinquent customers probably are unfair, what we don’t want to see is the banks using the outcome of this case as an excuse to switch all customers to European-style bank charges, whereby customers pay through the nose for all transactions.
That would be a loss for everyone and we mustn’t let the banks get away with it.
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