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Hidden deep in Mr Darling’s PBR last week, where only sad tax advisers would find it, was a government promise to tackle banks and building societies that levy ‘unfair’ charges. Setting aside for a moment the natural cynicism associated with pre-election pledges, what could this mean to hard pressed individuals who occasionally edge into the red?
It is estimated that UK banks make £4.7bn in fees annually from charges. Campaigners have been using two arguments to challenge the banks: that they are an unlawful penalty, or that they are unfair and thus in breach of the Unfair Terms in Consumer Contracts Regulations.
A bank has a contract with its customer. If the customer goes into the red without permission, this may be a breach of contract. The remedy for breach of contract is compensation, and the parties to the contract (ie the bank and the customer) may agree in advance exactly what that compensation should be. These ‘agreed’ terms will be in the bank’s small print. Where the charge is very high, this could amount to an illegal penalty.
The OFT has taken the banks to task on the second, unfairness argument. This came to a head towards the end of November when millions of consumers were dealt a crushing blow as the Supreme Court (previously the House of Lords) ruled in favour of eight high street banks. The court ruled that unarranged overdraft charges are not governed by fairness, under the Regulations.
The OFT will now struggle to continue its investigation, although consumers are of course still free to pursue the banks independently. However, with the OFT thwarted, the chances of success are now slim, and hopes for repayment of as much as £20bn in overdraft fees have been dashed.
It would seem that after bailing out the banks following the credit crunch, the man in the street is again being hit in the pocket. Of course Mr Darling is riding to the rescue on his white charger: “The Government will work with consumer groups, the OFT and the banks in order to agree a new framework that will make bank charges fairer, simpler and more transparent in the future. The Government will take action to deliver change if a voluntary approach does not result in a fair outcome for consumers”.
So that’s alright then.