Bank charges - the latest findings

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Tuesday 22nd July 2008

The Office of Fair Trading (OFT) has published the latest findings from its research into bank charges, which may make disappointing reading for many UK current account holders.

Alongside its formal pursuit of a ruling on the fairness of bank charges in the courts, the OFT is also conducting its own studies of the market to help form its case, the industry watchdog explains.

Now it has found the UK current accounts market to be "stuck in an equilibrium" which is preventing customers from deriving the best value from their accounts that might otherwise be expected.

Chief executive John Fingleton comments: "Customers lack the information they need to choose the best deal and this in turn weakens the banks incentives to compete - there is much the banks could do to improve how the market works."

The OFT adds that the "status quo" of the current account market as it currently exists is not satisfactory and that the banks should take the findings of its report into consideration in order to improve their products.

Fairness in facts and figures

Perhaps the most attention-grabbing figure to be released by the OFT in its latest report is that 81 per cent of the banks overall income is derived from two types of charge.

The first is a penalty for customers attempting to make a payment with insufficient funds in their accounts - sometimes called an "unauthorised overdraft" - and earns £2.6 billion per year for the UKs financial services providers.

Even more money, £4.1 billion, is saved by the banks paying a relatively low interest rate on current accounts, compared with the extra income each customer could expect if they were to move the funds into a high-interest savings account.

Also of potential intrigue is the OFTs discovery that the UK financial services industry makes more money from current accounts than from credit cards and savings added together.

Based on statistics from 2006, the OFT notes that personal current accounts are worth some £8.3 billion in total to the banks - thats equivalent to £152 per accountholder.

Reclaiming charges

With current accounts the latest charges to come under the fairness microscope, Britons might be keen to reclaim any lost funds they are entitled to - however, there are a number of other products where it may also be possible to reclaim funds.

Claims Financial is one of the companies which promises to pursue such claims on a no-win no-fee basis, taking a share of 29.37 per cent of any damages it succeeds in retrieving.

As well as current account charges, the service allows its customers to select other products on which they may be entitled to compensation.

These include payment protection insurance which has been mis-sold, unfair credit card charges, fees accrued on mortgage arrears and "mortgage exit administration fees" - the cost of leaving a mortgage before it reaches its full term.

Claims Financial explains that the banks may only legally charge customers enough to cover their own costs if an unauthorised overdraft is entered into.

While charges have in the past been in the range of £20-£40, the company suggests that the cost of mailing an automated letter to inform the accountholder that they have gone overdrawn may actually be closer to £2.50 or less. ADNFCR-8000200-ID-18694925-ADNFCR ©