Unfair Bank Charges

On April 25, 2008 a decision was finally reached regarding the unfair bank charges that were being charged with credit cards.  The Office of Fair Trading started proceedings in 2007 to help consumers reclaim money that was unfairly taken through charges.  The consumer credit act of the 70’s was called into question as to whether it would protect the many UK residents regarding these charges.

In 2007 steps were made for charge backs or refunds to be made to consumers who filed complaints, but these refunds were stopped when the court case against the credit card companies was put on the docket.  The freeze on the refunds have had many individuals wondering what would happen, as well as what might change in the coming months.  While the decision is a first step in the process, we have at least seen the Office of Fair Trading win their case.

The Judgement ruled in favour of the OFT and against eight of the largest banks in the UK.  The Banks are Abbey, Barclay, Clydesdale, Halifax, HSBC, Lloyds, RBS, Natwest, and Nationwide Building Society.

The case that went before the court was very specific in the charges.  The overdraft fees being charged are seen as a necessity by the banks as well as the Office of Fair Trading, however a study that was created in 2007 showed the charges were abnormally high regarding the actual amount that it costs the banks for such overdrafts.

The banks, on the other hand, believed what they charged was fair because it would stop individuals from defaulting on their loans.  They said that the processing fees, administration fees, and other reasons financial related to the process demanded the overdraft fees needed to be high, but also if they were to lower the fees then everyone would default more often, when they begin to struggle rather than seek financial help.

The fact is that these banks earn about 3.5 billion pounds a year on overdraft fees and the like.  This is a great deal of income.  The banks already paid out 800 million pounds in 2007 because of the refunds the OFT demanded last year.

As we mentioned earlier this is just step one in the entire process.  While the OFT has won the first round there are still other things to consider.  Many of the cases that have been brought against the banks are on hold until the end of May.  The banks and building societies have their right to appeal, which means the refunds will be held until the appeals have been made and the argument is at a close.  The Office of Fair Trading has been given the right to decide if the charges are unfair and force the banks to change their practices.  This could mean a lowering of the unfair overdraft fee in order to save more court battle.

On the other hand there may be more trouble ahead.  If the banks lose the appeals they may step up the interest rates they are charging to earn back the money they are losing.