Banks are accused of 'profiteering' in the wake of unfair bank charges ruling

21 May 2008 / by Daniela Gieseler
Banks and building societies have hiked their overdraft rates considerably since the beginning of the year despite the Bank of England's two base rate cuts, according to finance website Moneyfacts.

Their research revealed that the average rate on current accounts has risen to 12.95 per cent, compared to only 12.55 per cent at the beginning of this year.

Campaigners interpreted the increased overdraft charges as evidence that banks are making every possible effort to compensate for the revenue they will lose due to the High Court's ruling on excessive bank charges, and accused the banks of 'profiteering'.

Last month, the High Court ruled in favour of the Office of Fair Trading (OFT) in a court case against eight of the UK's major banks and building societies, allowing the OFT to apply consumer contract regulations to decide whether bank charges are fair or not.

In the past, consumers have been charged up to £39 by their banks for exceeding their agreed overdraft limits, for bouncing cheques or returned direct debits, incurring several penalties a day if more than one transaction failed.

By charging these fees, banks were raking £3.5 billion extra profits annually. The OFT argued the charges were by far higher than the administrative costs actually incurred when a consumer did not keep to the conditions of his contract, and therefore were disproportionate and unfair.

The High Court's sentence does not necessarily mean that bank charges are in any case unfair, but it strengthens the right of customers to some level of protection against unfair charges.

The banks still have the right to appeal against the ruling until the 22nd May, and until then there will be no changes in how unfair bank charges cases are handled.

However, after last month's High Court decision banks had already announced that they would have to raise the money from elsewhere if they lost the revenue from overdraft charges.

Experts think it could well be that, by raising the overdraft rates, the banks are pre-empting a reduction in fees when the OFT case is finally settled.

Eddie Wetherall, chairman of the Independent Banking Advisory Service, commented: "Banks are looking for every opportunity to increase their profit margins. It is always profit above customers. And we call that profiteering."

© Fair Investment Company Ltd