Thursday, 17 January 2008

Will the banks win their case on charges?

The UK banks have finally begun defending a case against the OFT re their allegedly unfair business charges.

I am personally quite keen that they win. Effectively what the banks do is rip off people who are stupid. Going overdrawn without a limit - stupid. Writing a cheque that you know will bounce - stupid.

Of course, at times I have done both the above and it is a annoying when they get you; but by doing this we have free banking and lower charges for those customers who can manage their finances. Do we really think that if they lose the bank's shareholders will just accept lower profits in future, of course not.

A prime example of idiocy in in the link, scroll down and see the comment by Luke. The chap could see his problem but clearly could not be bothered to fix it, so he calls them bloodsuckers.

Having lived abroad, it would be a shame to see the end of free current account banking in the UK, it is a great model overall for the financially prudent.


Old BE said...

Couldn't agree more! The charges are irritating because they are generally self-inflicted. OK when they make a mistake they don't try very hard to rectify it but overall we get quite a good trade-off in our system.

In Australia and the US, current accounts aren't nearly as flexible as they are here. They have cash withdrawal charges, monthly fees, no inter-bank agreements etc. etc.

Can't the banks find a way around this by offering a choice between the current setup and a more "transparent" but expensive deal??

Mark Wadsworth said...

Agreed, provided you toe the line, personal banking in the UK is really very good.

Where banks are really awful is the way they mess small businesses about, they cause as much grief as HM Revenue & Customs.

Anonymous said...

"but by doing this we have free banking and lower charges for those customers who can manage their finances."

Um, no. We have free banking because the banks absolutely depend on having deposits as reserves to underpin their fractional reserve lending. As a result we take some risk in depositing our money in a bank (remember Northern Rock), for which we should expect certain benefits such as free banking. That is why banks describe the deposits as "liabilities" - because the bank may need to swap the amount on our bank statement for real cash (and they actually may not have enough of that to go around).

I am astonished that you have fallen for this banking propaganda, CU. The banks like to give us the impression that they are doing us a "favour" by allowing us to deposit our money with them. It is the other way around.

Anonymous said...

If I go overdrawn on my HSBC deposit account they charge me a fortune for it. Which is strange as I have an HSBC credit card - a line of code in their database and the overdrawn amount could be immediately charged to my credit card giving me a month to pay it back with no charge at all.

It is high time we all took a closer look at what the banks get away with. They are crooks of the highest order and the source of the impoverishment of the middle classes. The fact that the banks in the US get away with even worse crimes is only an indication of the poor quality of US education.

Newmania said...

Just caught up CU ...some good stuff , I must say Real Schaudenfreude has a tremendous point there I have loads of cash in the bank at the moment but it is all earmarked for luxuries like food and clothing over the next few years.

Sigh....why oh why oh why was I not born wealthy.The hours a are so good

CityUnslicker said...

Disagree real, and side with Ed, having lived and done personal banking abroad it is a nightmare; fees for everything.

Your underlying point is sound and that is why for the risk you should choose a current account that pays interest; of which there are plenty off the high street.

However, as nasty as banks undoubtedly are, free current account banking is a good thing. It does not exist anywhere else in the world and it would be sad to end it here.

Then we would be taking more risk as you point out for fractional reserve, whilst having even less benefit.

Anonymous said...

My current account in NZ was free. I paid in Oz. It's decades since I had anything to do with US retail banking, but it was laughable.

Steven_L said...

Once you strip all the politics away and just look at the bare legal arguments it is clear that the OFT will win.

The whole thing will drag on a couple of years whilst the banks appeal up to the ECJ but they will lose.

In the USA credit cards are allowed to have a default rate of interest. You take out a card at say 5.9%, and as soon as you miss one payment you get stung with the default rate of 29.9% for the next few months or year.

Now Capital One and MBNA didn't like the fact that the UK Consumer Credit Act prevented them from doing this - hence they introduced the penalty charge. I remember when Barclaycard used to have a £10 a year fee. This was quietly dropped around 2001 and small penalty charges occured in their place. In 2001 Lloyds TSB used to charge me a £10 penalty for going over my overdraft.

By 2005 those fees had risen to £25 for Barclays and £35 for Lloyds. The banks will lose this case, unless they can prove you going over your limit costs them the amount of the penalty charge they are screwed.

Bullshit Spotter said...

I agree broadly with you, but also with other posters who disagree, for a simple have missed the whole point!

The banks are not free BTW, which was not a good comment for you to make.

The whole point is not them making charges, but the amount of charges and how they can grow massively from a small amount to a huge amount because the banks do not have in place checks and measures. Also, remember, that banks don't need to let you go overdrawn, so why do they then charge punitive amounts that then compound up to large amounts?

These are the points being discussed in court, not whether they should be free.

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