Banking news
Millions of bank customers out in the cold
31 August, 2007
The ‘big freeze’ on bank charges introduced last month will result in almost one million claims, worth a staggering £713 million, being put on hold.
By keeping this money from consumers, these frozen claims will net the banks an extra £20.5 million in interest over the next six months while the Office of Fair Trading (OFT) prepares its case.
Mike Naylor, Personal Finance Expert at independent price comparison website, uSwitch.com, said: “Legal clarity on bank charges in long overdue. The OFT has already sent out a clear message that it does not consider default charges to be a legitimate source of revenue. In light of the banking industry’s refusal to change its practices the issue is now set to be determined once and for all by the courts.
Last month the OFT announced a High Court test case against Britain’s high street banks to clarify the legality of bank charges.
The OFT entered into an agreement with eight of Britain’s top banks to resolve the issue, including Abbey, Barclays, Clydesdale Bank, HBOS, Lloyds TSB, The Royal Bank of Scotland, Natwest and Nationwide Building Society.
For consumers, the impact of the OFT’s test case against bank charges could extend far beyond the current account market. The outcome of this ‘battle’ will establish a clear benchmark for the banking industry on the legality of penalty charges.
Naylor said: “The decision about whether bank charges are lawful is now out of the hands or both the banks and the OFT, although of course the banks remain at liberty to continue levying charges on their customers.
“There are at least one million claims that have been frozen pending the result of this test case, and no doubt there will be a deluge of complaints to follow if the Court finds that the charges are unlawful. The very least the OFT should be doing right now is working to ensure that proper systems and guidelines are put in place to ensure that once the Court’s judgement is issued the banks abide by a strict timeline and adhere to a clear set of guidelines.”
According to Naylor, the banks should not be allowed to allocate themselves an open ended deadline to enforce the Court’s decision or to deal with one million outstanding claims.
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