The British Banking Association has responded to the threat of legal action over overdraft charges from the Office of Fair Trading with a threat to end free current account banking for UK consumers.
The OFT has recently published a report criticizing credit card providers for charging high fees to consumers who fail to pay the minimum amount by their due date or go over their agreed credit limit. The agency said that a threshold of GBP12 would be a fair charge and companies charging more may face legal action.
The report said that the same principles could apply to overdraft charges. Consumer association Which? has launched a campaign against charges it believes are unfair. A survey from the association found that one in four people used an unauthorized overdraft (going over the agreed overdraft limit) in 2004. Banks collectively made GBP3 billion from the automatic charges, which are on average GBP30.
However, the BBA which represents banks in the UK hit back on the claims that the charges are unfair. Ian Mullen, chief executive of the BBA said: Banks do charge customers a fee when they go overdrawn without the prior agreement of the bank. Where there are extenuating circumstances, many banks will consider waiving this fee in individual cases on application by the customer.
Unlike in other countries where customers pay both to have a bank account and for the services they use, in the UK banks provide free banking, including access to free debit cards, free access to ATMs, free use of cheques, free use of direct debits, free internet banking, free telephone banking and the provision of free paper statements.
The executive director of the BBA, Joanna Elson, added that if the OFT pushed this to its logical conclusion, it would cast questions over the arrangements at present.