I’m rather amused to read today the “bank charges reclaiming may be the end of free banking” story flooding the press. It does feel a bit like the “we’ve been pushing this positively for some time, so now let’s have a negative version” reaction. Obviously as 2.8 million template letters have been downloaded from the bank charges reclaiming article, I take this a bit personally and I’ve been involved in this from almost the beginning (see bank charges reclaiming history). So let me run you through the facts.
1. The OFT has made an announcement. The OFT has said it thinks ‘free banking’ isn’t transparent and will investigate. Well done, OFT: I hate the term ‘free banking’ it should be ‘fees-free banking if you’re in credit’. Yet sadly, the OFT, even once it investigates, can’t rule: all it can do is give its opinion, then take banks to the court. While it could get a ruling against bank charges (as they’re unlawful), I’d be surprised if it got one on fees free banking – I can’t see the legal issue.
2. Real profit is from lending at 18% and paying 0.1% in savings. While bank charges are profitable, banks really make their cash from only paying us 0.1% when we’re in-credit and lending it back at up to 18% on unsecured debts – a very profitable game. Bank charges account for £1-2 bn a year it’s estimated – yet bank profits were £38 bn last year and the year-on-year increase alone was £5bn. And of course no one is demanding an end to bank charges, just saying they’re unlawful because they’re too big – I’d be happy with a £2-5 charge rather than the current £30ish.
3. Banks don’t have to pay bounced cheques. The idea ‘people are unfairly taking the banks money’ is nonsense. Banks have two limits when you go beyond your authorised overdraft; the ‘paid’ and ‘unpaid’ limit. This means internally they allow you to keep taking money out up to a further limit. The system is designed this way so that they can levy these profitable fees.
4. Free banking isn’t going to end. The only change we’ve actually seen is from First Direct and the prime reason for that is to try and get rid of many of its dormant accounts – not due to bank charges. No other bank has started charging fees in-credit and many have already pledged they won’t. Yet let’s not let the evidence get in the way of a good story. In fact the competitiveness of the market and the fact this’ll prevent the end is the one thing the British Bankers Association and I agree on. The best bank accounts currently pay 6.5% in-credit interest and give 0% overdrafts fees-free.
Yet let’s suppose the OFT’s intervention could swing it in some way that’s not predicted – but that’s not due to bank charges, it’s due to the OFT’s view.
5. Blame the banks. Remember this is all about the banks making unlawful charges, so why blame the campaigners trying to put it right? Surely it’s the banks we should be blaming.
So my clarion call is simple, reclaim, reclaim, reclaim!