The Great Bank Charges Scandal

Bank charges are in the news again, with the Office of Fair Trading (OFT) taking a test case to the high court to determine whether the banks are acting unfairly when they levy overdraft fees.

There's no doubt that the fees are grossly unreasonable. But on the other hand, they are spelled out in the fine print, and you can avoid them by not exceeding your agreed overdraft limit. And banks argue that if they are prevented from charging these fees (which amount to billions of pounds a year) then they will have to end free personal banking.

Let's look at these arguments. Firstly, the notification of an unreasonable action doesn't make it reasonable. It might make it avoidable, if there were any other option: but since all banks do it, there isn't.

Secondly, I don't think many people intentionally exceed their overdraft limit: it happens from time to time due to Sod's law, despite your best efforts: why should the bank make money from that? The decision to grant credit could be completely automated (in fact, it probably already is), and if an exceeded overdraft resulted in a bounced cheque, the inconvenience of that would be penalty enough for the hapless account holder, without adding a huge financial penalty on top as well. Especially when multiple charges are levied.

Finally, the threat of the end of free banking. So what? Personal banking is not really free now: there's the pitiful interest paid on current account balances for a start, and then there's the whole penalty fee issue itself, which obviously pays for the "free" banking at the moment. So we are really talking about an issue of fee transparency: how easy is it to know in advance how much you will be charged?

Instead of charging a monthly account fee and a transaction fee for each cheque, which would enable you to know exactly how much your banking costs you, you have the current fiction of "free" banking, coupled with the uncertainty of knowing that any time you take your attention off your account, you could be hit with a couple of hundred pounds of charges, probably when you can least afford it. Which would you prefer?

It's kind of like London Underground saying that you can travel on the Tube for free, but if you ever put your foot over the yellow line, play your music too loudly, or don't move down inside the carriage, you'll get hit with a £2,000 fine.