Banks could be in violation of FSA waiver by increasing overdraft charges

10 December 2008 / by Rachael Stiles
UK banks which have increased the amount they charge customers for exceeding their overdraft limit could be in violation of a Financial Services Authority waiver, which has frozen the claiming process but which stipulates that the charges must not be increased in the meantime.

Analysis from MoneyExpert.com recently found that banks have increased their overdraft charges by 20 per cent in the last year, meaning that the majority of current account customers are paying £5 more when they go over their authorised overdraft limit, bounce a cheque, or have insufficient funds for a Direct Debit.

The average charge for going into the red stood at £25 last November, but has now risen to £30, the website said.

In July 2007, the FSA issued a waiver on reclaiming bank charges, which means that the banks do not have to refund their customers until a High Court test case between the banks and the Office of Fair Trading – to clarify the charges and test their fairness – has been settled.

One of the clauses of this waiver stipulates that the banks who sign it must not "make materially adverse changes in the level of its unauthorised overdraft charges". By increasing the so-called 'unfair' bank charges, the banks are breaking the Banking Code, according to Charlie Pilgrim from reclaiming website claimthemback.com.

An FSA spokesperson said that it is "monitoring the banks to ensure that they are FSA compliant", and that "a violation of the waiver would depend on whether or not the banks had plans in place to implement such changes before or after they agreed to the waiver."

Mr Pilgrim believes that the banks not only initiated these changes after July last year, meaning they are in violation of the waiver and the Banking Code, but also that they did so in response to the test case, and have "changed their charge structures in a way that will make it less simple for claims to be bought against them using the law that is being contested in the High Court (Unfair Terms in Consumer Contracts)."

By charging £5 a day for overdrawn accounts in place of a one-off monthly charge of £30, the banks are making it "harder to prove that their costs are less than their charges." he said.

The FSA issued the waiver because customers reclaiming their money were not being treated consistently – some were being offered an entire refund, others a partial refund, while some had their accounts closed against their wishes – but Mr Pilgrim believes that the waiver is one-sided in favour of the banks, because while customers are being prevented from reclaiming their money, the banks are still allowed to keep charging them.

"The banks increasing their charges only adds insult to injury" he added, and calls on the FSA to investigate the banks and – if they are found to be violation of the waiver – to revoke it, as it says in the conditions of the waiver.

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