The Office of Fair Trading (OFT) is warning Britain's bankers that they face a formal enquiry if they keep charging extortionate fees to customers.
Examples of these sky-high charges include:
- Typical fees of £25 for late payment of your credit-card bill or for exceeding your credit limit;
- Charges of up to £35 per day (!) when you run up an unauthorised overdraft on your current account; and;
- Up to £35 for bouncing a cheque or Direct Debit.
The OFT has ruled that these penalty charges are excessive, given the amount of work required to inform customers of their slip-ups. When you make a mistake of this type, banks will send you an automated "oops" letter and bill you a hefty fine for the privilege. The OFT believes this falls foul of the Unfair Terms in Consumer Contracts Regulations, which prevent organisation from charging excessive penalties to consumers.
The OFT has asked banks and building societies to look at their charges to ensure that they properly reflect the true cost and effort of dealing with these (often accidental) slip-ups. If banks fail to respond to the OFT's guidance, they could face an industry-wide investigation. As I explained last year in Overdrafts From Hell!, UK banks make £3 billion a year from interest and charges on unauthorised overdrafts, which is approaching a tenth of total UK banking profits. Unbelievable!
Earlier this year, my wife was charged £80 plus an interest rate approaching 30% a year when a large sum was taken from her account by Direct Debit. I know that the banks cannot justify these charges, so a stiff letter from me saw the penalty charges refunded within days. You see, they know that they're ripping us off, but they only give refunds to customers who put up a fight. As we say in the industry, "the squeakiest hinge gets the grease"!
If you're fed up with your bank for hitting you with fines for minor misbehaviour, the simplest thing to do is vote with your feet by moving to a better account or credit card. Many of the new generation of bank accounts provide you with an interest-free 'buffer zone' so that you don't pay a fortune for being in the red by a few pounds. For more advice on switching to a better bank, read Bag A Better Bank Account Today!
Likewise, why pay sky-high interest rates on your credit card, when you can enjoy up to a year's interest-free credit with a 0% credit card? To learn the rules of the 0% game, read Beware Of These 0% Card Traps! and From 30% To 0% In Sixty Seconds!
Finally, banks will wish to preserve their vast profits at any cost, so this could lead to the end of free banking as we know it. Then again, pundits have been making this prediction for the last fifteen years and it hasn't happened yet!
More: Check out our brilliant bank accounts and charming 0% credit cards today!
