Could Unfair Bank Charges soon be a thing of the Past?

08-Sep-2009

Natwest and RBS are among the high-street banks to reduce their unauthorised overdraft fees.  These fees, which previously could total a maximum of £6,688 each month, are charged when a bank customer exceeds their agreed overdraft limit.   The Natwest and RBS fees have now been lowered to a maximum of £15 per day which, whilst you still have the potential to rack up £450 per month if you do not keep a tight rein on your spending, is a significant improvement.

These changes have been implemented ahead of a decision by the Supreme Court about whether the Office of Fair Trading (OFT) has the jurisdiction to regulate the consumer charges put in place by banks.   Although the final decision has not yet been made, banks have not so far been successful in contesting the rulings.  The banks' decision to reduce the charges may therefore be a way of pre-empting the court order to make their charges more consumer-friendly.  Either way, it is a step forward for the consumer, and the decision puts pressure on other major banks to do the same.

In addition to reducing the charges of exceeding an overdraft limit, Natwest and RBS are also reducing the costs of administration for a 'bounced' cheque, direct debit or standing order to £5 from £38 and the account maintenance charge from £28 to £20.  Announcing the changes yesterday, the new CEO of the UK Retail Bank, Brian Hartzer, said: "This is good news for customers, not least because the fees for unarranged borrowing have been an area of ongoing concern for them. As we look ahead there are many issues to consider, but we thought it was time to move this particular customer concern forward by cutting our charges."

It remains to be seen whether those that keep their accounts in credit will suffer from the ruling.  The money from the charges (an estimated £3.5bn per year) is currently used to subsidise money transfers and ATM withdrawals, keeping these services free for customers.  However, competition between banks and new, more consumer-friendly regulations, should ensure that consumers that do not borrow from the bank, or at least keep within the prescribed limits, do not lose out.

Louise Bond, person finance expert at uswitch.com says, " "As the first provider to step up to the plate and do the decent thing before the outcome of the test case, we eagerly await the other big banks to follow suit. Only time will tell if this new charging structure does what it says on the tin without carrying any nasty hidden surprises for customers."

Despite the fact that charges are likely to soon reduce across the board, bank customers are still advised to keep a very close eye on their finances.  With online banking and text banking making financial management ever more accessible, it makes sense to regularly check your current account's balance to make sure you are staying within your overdraft limit, since even £5 per day can seriously eat into your disposable income.