HSBC and First Direct scrap unpaid transaction fees

HSBC and First Direct will no longer levy a fee of up to £25 when transactions are left unpaid due to insufficient funds.

At present, when HSBC and First Direct decline to honour transactions because customers have insufficient funds (or will exceed their overdraft limits), these banks levy a fee of up to £25 per offence. These fees apply to 'bounced' cheques, dishonoured direct debits and rejected standing orders.

However, from 24th November these penalty fines will become history as HSBC reviews its overdraft structure for personal current accounts.

The global giant describes this move as "part of its drive to simplify products and reward long-term relationships". It goes on to state that this removal "is the first step in a review which will lead to a simpler and more straightforward overdraft service for HSBC and First Direct’s personal current account customers". Further changes to the overdraft service will be announced next year.

The removal of unpaid transaction charges applies to all HSBC current accounts which levy such charges, including:

• HSBC Advance
• Bank Account
• Current Account
• Graduate accounts
• HSBC Student accounts

Any unpaid transaction charges incurred up to 24th November will still be payable and these fees will be debited in December, 21 days after being pre-notified to customers. Until withdrawn, these penalties remain as follows:

1. No charge for declined transactions of less than £10.
2. A £10 charge for declined transactions up to £25.
3. A £25 charge for declined transactions above £25.

A £200 million-a-year racket

According to UK banking regulator the Financial Conduct Authority, British banks make an estimated £200 million a year from unpaid transaction fees, yet HSBC has broken ranks by scrapping them.

Then again, these fees are just one of a plethora of penalties banks levy on customers who go into the red. The Office of Fair Trading estimates that banks raked in a whopping £2.6 billion in 2009 from unauthorised overdraft fees. Despite this, the Supreme Court ruled in 2009 that the OFT could not rule against these charges (as it had previously done with unfair credit card penalties).

Compare the current accounts with the best overdraft deals

What other banks charge

The UK's big four banks (Barclays, HSBC, Lloyds Banking Group and Royal Bank of Scotland) control around three quarters of personal current accounts.

Here are the unpaid transaction charges currently levied by the UK's main banking groups (sorted from lowest to highest fees):

A right rip-off

As you can see, unpaid transaction fees vary widely between banks, ranging from £6 per item at NatWest and its parent RBS to a hefty £25 at Santander. With some banks charging more than four times as NatWest for an identical service, this clearly demonstrates what a blatant scam these charges are.

Surprisingly, Nationwide BS and Co-op Bank (both 'ethical', mutually owned providers) charge among the highest fees for returning items unpaid. Both charge £15 per rejection, with upper limits of £75 a month at Nationwide and £150 a quarter at the Co-op.

Hats off to HSBC for scrapping these charges, but it's high time that these swindling fines are scrapped entirely.

Compare current accounts with lovemoney.com

More on current accounts:

The added extras you can get with fee-charging packaged bank accounts

Best buys that are only for banks and building societies' existing customers

Lloyds Bank to launch cashback on current account spending

Clydesdale and Yorkshire Banks launch 4% interest-paying current account

The banks with the worst online banking security

Get paid £100 to switch banks