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The question of retail banking charges on overdraft fees have been back on the agenda this week. Research for Panorama reveals that high street banks surveyed are charging as much as 167% interest on unauthorised overdrafts and an average of 32% interest on authorised overdrafts, despite advertised rates of around 19%.
Vince Cable, the Government’s Business Secretary and long term critic of the banking sector couldn’t resist a broadside. Mr Cable said: “When we talk about restructuring the banks what’s going to come out of this is a more competitive system where the customers are not ripped off.”
According to the Office of Fair Trading, in 2006, Britain’s banks earned £2.6bn in profit from penalty charges. Based on that fact it may appear that Vince Cable has a point, but given that to the general public current accounts are largely offered free of charge banks have to make money from somewhere. The alternative is monthly fees for all which would surely penalise those customers who run their accounts sensibly and therefore do incur penalty charges.
Vince Cable also made the point that the banking system is now even more concentrated than before the crisis leading to less choice which allows the banks to increase margins. It was however the former Prime Minister who waived competition laws to enable Lloyds to take over HBOS, thus putting Halifax, Lloyds, C&G, Scottish Widows and Bank of Scotland under the same roof.
The FSA are also putting significant pressure on banks to strengthen their balance sheets, something which can only be done if the banks continue to make good margins.
The question remains, are banks ripping off customers or do they represent a vital pillar of the economy trying to get back on its feet?
I would welcome your comments.
Andrew McIntee is Director, Financial Services at Interim Partners.
July 28th, 2010 at 3:09 pm
I feel its a little of both. I have an appreciation of why they would try to recoup money from somewhere given the current economic climate however, when it hits your pocket personally, it becomes difficult to accept the banks charges and their reasons for doing so.
July 30th, 2010 at 8:01 am
One of the key issues in this debate is the imbalance of power in the relationship. The banks make a great deal of their “openness” and availability but the reality is often different. The banks see the customer as the supplicant and themselves as the emperor, dispensing favours to a selct few, based on arbitrary criteria. You complain about your fees and are treated one way. I make a similar complaint and am treated more or perhaps less favourably. The system is opaque. You get a loan with no security at seven percent. He has to put his house up as surety and have the loan at a different rate. My son is a dentist and he gets a vast “professional” loan at almost no interest.
However unfair this may be at a personal level, it is worse for nascent businesses with no trading history but an idea, or for those small and medium sized companies which have a “difficult” set of accounts for last year.
I am fortunate in that I am not in need of support from the banks at present, but am aware of many who are - and where the banks appear to be acting in no-one’s interest. Not the customer, nor the shareholder, rather a system local performance targets driving activity. Banking relies on an ssessment of risk, priced appropriately. This isn’t happening.
August 6th, 2010 at 10:26 am
We live in a global market economy and should take individual responsibility for our actions. So what if banks made £2.6b in penalty charges. Surely that was the choice of the individuals and organisations to take on those terms and then abide by them and if you default you pay the consequences
In the new global and interconnected world, we can chose which bank we use and we know the consequences of our actions as they are clearly articulated by the banks. If we do not like the terms or actions of a particular bank… change and you do not have to change within the UK system. You now have the EU and in several instances beyond.
Finally, the banks like all else want to make a profit and if your idea, business or need is relevant and can demonstrate a return funding should not be an issue. Successfully run businesses and individuals funnily enough don’t suffer from these issues.