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Banks pay Ā£200m for āunfairā fees
Britainās biggest banks have paid out an estimated Ā£200m this year through customers reclaiming their āunfairā overdraft charges, according to a new report.
Credit Suisse on Wednesday published a study estimating that the banks including Barclays, Lloyds TSB and the Royal Bank of Scotland were likely to take an aggregate hit of Ā£200m in the first six months of 2007 alone.
Earlier this year, some big lenders were receiving 500 claims a day from customers seeking to reclaim overdraft charges, although the volumes are thought to have dropped off in recent months.
Up to 3,000 consumers a day have been calling the Financial Ombudsman, the service that settles disputes between companies and consumers about bank charges.
In addition, claims-handling companies, which have encouraged customers to make mortgage endowment mis-selling claims, are piling into the sector and targeting people reclaiming bank charges.
Thousands of customers have been lodging legal claims against overdraft charges, which are placing a strain on the court system.
No banks have yet outlined how much the consumer backlash on penalty charges is costing them, although all have said the figure is not significant at a group level.
However, banks are expected to quantify the figures for the first time when they report first-half results later this month.
Jonathan Pierce, banks analyst at Credit Suisse, said on Wednesday he expected the impact of claims over penalty charges would be about 1 per cent of group profits, although he doubted every bank would disclose the numbers.
Barclays has said that claims on penalty charges have dragged down net fees and commissions.
HBOS has said it is splitting out claims on penalty charges from its underlying earnings. Mr Pierce estimates it will have to set aside Ā£50m in the first half of 2007.
āHBOS said the number wasnāt material but thatās subjective and anything above say Ā£50m would, in our view, be material in the context of the retail bank and pose a serious further threat to management credibility,ā Mr Pierce wrote in his report.
Banks are arguing the fees are discretionary service fees but consumer groups such as Which? maintain that overdraft charges are penalties and should reflect only the modest costs that a bank incurs when imposing them.
The Office of Fair Tradingās investigation is set to be completed later this year.
People familiar with the organisationās thinking say it is considering measures to help to curb the number of cases that come to court. If the OFT rules that bank penalty charges must be reduced, banks have made it clear that the industry could stop offering free banking to customers who are in credit.
Instead, banks could operate a more Continental-style system and charge for each transaction or impose a monthly fee.
Copyright The Financial Times Limited 2007
FT.com / World - Banks pay ĆĀ£200m for Ć¢ā¬ĖunfairĆ¢ā¬ā¢ fees
Credit Suisse on Wednesday published a study estimating that the banks including Barclays, Lloyds TSB and the Royal Bank of Scotland were likely to take an aggregate hit of Ā£200m in the first six months of 2007 alone.
Earlier this year, some big lenders were receiving 500 claims a day from customers seeking to reclaim overdraft charges, although the volumes are thought to have dropped off in recent months.
Up to 3,000 consumers a day have been calling the Financial Ombudsman, the service that settles disputes between companies and consumers about bank charges.
In addition, claims-handling companies, which have encouraged customers to make mortgage endowment mis-selling claims, are piling into the sector and targeting people reclaiming bank charges.
Thousands of customers have been lodging legal claims against overdraft charges, which are placing a strain on the court system.
No banks have yet outlined how much the consumer backlash on penalty charges is costing them, although all have said the figure is not significant at a group level.
However, banks are expected to quantify the figures for the first time when they report first-half results later this month.
Jonathan Pierce, banks analyst at Credit Suisse, said on Wednesday he expected the impact of claims over penalty charges would be about 1 per cent of group profits, although he doubted every bank would disclose the numbers.
Barclays has said that claims on penalty charges have dragged down net fees and commissions.
HBOS has said it is splitting out claims on penalty charges from its underlying earnings. Mr Pierce estimates it will have to set aside Ā£50m in the first half of 2007.
āHBOS said the number wasnāt material but thatās subjective and anything above say Ā£50m would, in our view, be material in the context of the retail bank and pose a serious further threat to management credibility,ā Mr Pierce wrote in his report.
Banks are arguing the fees are discretionary service fees but consumer groups such as Which? maintain that overdraft charges are penalties and should reflect only the modest costs that a bank incurs when imposing them.
The Office of Fair Tradingās investigation is set to be completed later this year.
People familiar with the organisationās thinking say it is considering measures to help to curb the number of cases that come to court. If the OFT rules that bank penalty charges must be reduced, banks have made it clear that the industry could stop offering free banking to customers who are in credit.
Instead, banks could operate a more Continental-style system and charge for each transaction or impose a monthly fee.
Copyright The Financial Times Limited 2007
FT.com / World - Banks pay ĆĀ£200m for Ć¢ā¬ĖunfairĆ¢ā¬ā¢ fees
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