Trouble Ahead with Free Banking

There may be an issue coming up with a court case that is going to affect the world of free banking. According to headlines free banking may be coming to an end with the current account services. On Monday the court case regarding the street banks and the Office of Fair Trading is going to start. The case is going to outline the trouble the Office of Fair Trading is seeing with the overdraft charges being given. The Office of Fair Trading or OFT is trying to force banks to cut the fees on overdrafts in order to help customers that are paying the charges. However, this could mean bad news for free banking to consumers as the banks may elect to start charging for the bank accounts to offset the losses they will sustain in the OFT wins the court case.

Angela Knight is an executive of the British Bankers Association. She believes that the OFT is going to determine where the banks will go for the banking services offered, and that no decision can be made without consequences to the public. It seems that the bank customers have enjoyed a wide range of serviced for free through the banks, but with the court case this may change. In fact the OFT has to decide whether they would like to support the cut rates of the overdraft charges or perhaps make the industry worse by changing the free status of bank accounts. It is not a win or lose situation, but a, what is more important situation according to the bank association.

The court case is going to test what is going to be more important with the consumer watchdog and main banking groups facing off in the court over the overdraft fees. The banks disagree regarding the charges and the OFT wants the amounts lowered, but again this could affect the overall balance of the accounts. It is a more complex situation than the media and of course the simple statement above can really show. It is going to be a two part case. The High Court is going to establish if the bank charges are unauthorised and thus changed the protection rules for consumers. The act being considered is the Unfair Terms in Consumer Contracts Regulations that began in 1999. The act says that certain practices cannot be legal for banks and therefore anything that falls under that act must change to provide fair practices for the consumers. Since it is designed to protect the consumers it must be enacted by the High Court if this court case is found that the banks are eliciting unfair consumer contracts. The banks are expected to say that the overdraft is a service and therefore it is excluded from the Unfair Terms in Consumer Contracts Regulation act. In fact it is believed by the banks that the problem continues further with the implementation of the regulations as it pertains to the EU directive.

Court Case Beginnings

In the recent events of the banks versus the consumer there are many opinions as the, what is going to happen regarding the free banking and the actual outcome of the case. Knight believes that the EU regulation as pertains to the fairness rules are to ensure transparency rather than to really help the consumer and of course the banks. It seems that the other countries are not using them to impose structure on the banks. Instead the EU regulation is there, but the consumers are not really concerned or don’t have enough say in the overall fairness act.

The court case is supposed to last for eight days regarding the beginning proceedings where the OFT plans to publish the results of its inquiry on current accounts and to show how the market is working. The second part of the court case is not expected to begin until April when the judgment will be offered. The judge is going to decide in that time period whether or not the banks are subject to the fairness rules regarding the overdraft fees. If the judge decides the bank is not to be regulated for these issues the OFT is expected to try an appeal to argue the current levels of charges to be cut, since they believe the service offered is a lower cost than the charges are initiating. In other words the OFT believes the banks are charging more for the service than is actually warranted and they will want an appeal if the tide is not in their favour.

If the OFT can win both cases then they are going to find the go ahead for billions in compensation to be offered to the customers who have been unfairly penalized. In other words the OFT is expected to ask for the repayment of charges for up to six years worth be awarded to the consumers. This section of the actual case has been frozen until the outcome of the hearing is reached. At the moment the charges are 28 pounds to 30 pounds. In some cases as much as 90 pounds are being charged.

The bank is of course countering that no one has to pay the charges as long as they arrange for overdraft protection or if the consumer talks with the bank before borrowing fees. Since it is a complex issue the courts are going to need a bit of time to figure out what will actually result.

One thing that is going to be against the bank is their lack of disclosure. They have been unwilling to show the exact amount of how much it costs them when they must account for overdraft issues. It is said that it is actually the consumers lack with cross subsidising that is making the bank have to charge such fees. If the consumers were better at getting their affairs in order and managing them wisely they would not have to pay the fees. Of course paying such huge fees makes the situation worse.

Back To Financial News January 2008

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Trouble Ahead with Free Banking
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