Banks have said one thing to our faces and another thing behind our backs. Neil Faulkner examines just how they've managed to get away with it.
Whatever your view of bank charges, it's pretty clear that the banks have stated one thing to customers whilst saying the total opposite in the courts.
The Consumer Action Group (CAG) compared the defence used by the banks in the supreme court with the defences they used individually against their customers' small claims.
What the banks told individuals
In our small claims, CAG finds the banks vigorously denied that bank charges were profit-making and said that they were simply to cover administrative costs. Here is what some individual customers were told, as reported by CAG:
Lloyds said: “Our charges are fair and reasonable” and “This charge...does in fact bear a close relationship to the cost the Bank incurs.”
Yorkshire/Clydesdale Bank said: “The charges were a genuine pre-estimate of damage.”
Abbey Bank said: “Your charges are based on the extra administrative work incurred by Abbey...Abbey believes that it is reasonable to make a charge on such an occasion to pass on the costs incurred by the bank.”
HBOS described a charge as an “administration fee”.
Rachel Robson reveals some top tips for switching current accounts.
What the banks said in court
Consumer Action Group compares the above with what the banks told the supreme court, which was as follows:
“Those charges will necessarily exceed by a large margin the costs to the bank...They are actually a revenue stream...”
I can only think of two ways in which these contrasting statements could have happened: either all the banks made exactly the same error in that they forgot the charges netted them billions of pounds per year, or that some or all of them lied to their customers. If you think that another explanation is possible then, by all means, comment below.
More smoke and mirrors
Some banks have made changes to their charges recently and have been boasting that they are beneficial to customers. Perhaps to a layperson the charges will look better – at least until they receive their bank statements. From what I've seen so far, there have been no changes that are likely to result in any significant reduction in charges, and the same vulnerable customers are the ones who will be paying the bulk of the charges.
The OFT wants banks to offer an opt-out for unauthorised overdrafts. However, this is again looking like it'll be another smoke and mirrors opportunity. The most vulnerable people are the ones who'll benefit most from opting out, but they're also the ones least likely to do so as they fear too much for their short-term futures.
What's more, how the banks apply this opt out may make it less useful again. HSBC has said it will switch anyone wanting no access to unauthorised overdrafts to a different account where they must pay £15 per month. This sort of system will not encourage the people who really need it to switch.
Recent question on this topic
- sheelzie asks:
Is it true that ALL banks will soon start charging a £ a day for being into your overdraft? That’s what the Halifax are telling me.
- JoeEasedale answered "Stop going overdrawn -Simples..."
- Paul Warburton answered "I think the question asking is referring to an agreed overdraft by the sounds of it..."
- Read more answers
Getting to grips with banking
There are two strategies depending on whether you're incurring charges or not.
If you want to get to grips with your bank charges, you will likely need to make some hard choices now to get living within your means and take up the Goal to Destroy your debt. If you're finding it hard to change your habits, you should look for basic bank accounts.
The one that looks most suitable to me is the Barclays' Cash Card account which comes with a VISA debit card and charges the lowest amount for unpaid direct debits and standing orders, which is £8. You need to go in branch to apply, where you will likely be sold other products too. Ensure you come back and ask the opinion of our knowledgable users on Q&A before you take the loan or insurance you're offered.
The rest of us can continue to benefit from what's called free banking. It isn't free, of course; that's another myth the banks are keen to continue. However, you can at least make a bit of money from your bank by getting an account that pays interest as high as 5% or gives you a flat £5 per month. Check out some of the best deals here.
Finally, if you really want to learn to manage your money better, I’d recommend using lovemoney.com’s brand new online banking tool. It enables you to categorise all your transactions from different bank accounts and credit cards so you know exactly what you're spending your money on throughout the month, using your single, existing log-in to lovemoney.com. Find out more