Tweet
Kafka in Business Week (14/1/2008)
Britons Strike Back at Bank Fees
Britons Strike Back at Bank Fees
Is it the end of overdraft charges? British consumers are suing eight banks over what they think are unfair practices. The U.S. is watching carefully
by Kerry Capell
On Jan. 14, a long-awaited hearing begins in Britain to determine the legality of bank overdraft charges. The test case pits Britain's main consumer watchdog against eight big British banks in a battle that will have major ramifications for retail banks and their customers. The court's ruling, says HSBC Holdings (HBC) Chairman Stephen Green, could "change the economics of retail banking" in Britain.
British banks, like their U.S. counterparts, love to charge their depositors overdraft fees—those levies a bank collects for honoring a check when there's not enough dough in the account to cover it. British overdraft charges average some $57, much higher than the U.S. average of $34. Last year, banks in Britain generated an estimated $7 billion from overdraft and excess-borrowing charges, according to the Office of Fair Trading, the government's competition watchdog.
A good deal for the banks—except British consumers have been suing them like crazy over the last two years, claiming the fees breach consumer-protection laws. Pressed by the threat of litigation, the top five banks refunded customers $810 million in the first half of 2007 alone. Now, in a development that could influence similar battles in the U.S., the court will decide whether or not such charges breach consumer contract regulations, as the Office of Fair Trading claims they do.
Empower Yourself: Sue Your Bank
If the court agrees with the OFT, banks could be forced to refund overdraft charges dating back six years. A ruling isn't expected for several months at the earliest and appeals could drag the case out until next year.
If the banks are humbled, it will be because of the mad-dog zeal of the activists. One is Peter Brown. The soft-spoken history lecturer at the University of Wales has reclaimed a total of $13,000 in overdraft fees and resulting interest charges from four banks. He co-founded Legal Beagles - Consumer Rights Forum , a Web site that offers claim forms "for the self-litigating consumer." Says Brown, "Taking your bank to court is incredibly empowering."
The activists argue the banks' overdraft charges far exceed the actual cost of $9 or so they incur when customers overdraw on their account, and they should not reap such huge profits. Britain's banks argue these charges pay for a service provided to customers, so they are not covered by consumer protection laws that put a cap on penalties.
Settling With a Law Student
The British Bankers Assn. warns if the ruling goes against the banks, such standard perks as free checking and no-fee ATM services may go by the board. "There is no consequence-free result," warns the association's chief executive officer, Angela Knight. "If banks are put in a position where they have to change their business model, then they will. It may be there has to be a substantial change in how banks charge for their services."
Campaigners such as Stephen Hone wants banks to declare exactly how much it costs them every time a customer goes into the red without permission. Three years ago while still a law student, Hone became one of the first to take his bank, Abbey National, to court, claiming bank penalty charges must reflect the true cost of administering them. As the court date drew nearer, Abbey kept upping its offer to settle.
"By the time I finally settled for $10,000, it was around 600% more than I initially asked for," Hone says. His advice Web site, penaltycharges.com (motto: "So easy even a monkey can do it"), is attracting attention internationally. "I have e-mails from all over the world, including the U.S., from people wanting to know how they can challenge their banks."
Can the U.S. Be Far Behind?
No doubt, consumer groups and legal experts in the U.S. are watching the case in Britain closely. A bill in Congress would prevent U.S. banks from enrolling customers in overdraft-protection programs without their consent. Last year, U.S. banks and credit unions made $17.5 billion from such overdraft fees, according to The Center for Responsible Lending, a Washington nonprofit.
The banks in the U.S. are balking. But if high overdraft charges are banned in Britain and yet the banks there remain profitable, "it will undercut the U.S. banks' argument that they must impose these charges or they will go out of business," says Elizabeth Warren, a professor and bankruptcy expert at Harvard Law School. "The British may give us an example of profitability on fairer terms."
With Jessica Silver-Greenberg
Capell is a senior writer in BusinessWeek's London bureau.
Britons Strike Back at Bank Fees
Is it the end of overdraft charges? British consumers are suing eight banks over what they think are unfair practices. The U.S. is watching carefully
by Kerry Capell
On Jan. 14, a long-awaited hearing begins in Britain to determine the legality of bank overdraft charges. The test case pits Britain's main consumer watchdog against eight big British banks in a battle that will have major ramifications for retail banks and their customers. The court's ruling, says HSBC Holdings (HBC) Chairman Stephen Green, could "change the economics of retail banking" in Britain.
British banks, like their U.S. counterparts, love to charge their depositors overdraft fees—those levies a bank collects for honoring a check when there's not enough dough in the account to cover it. British overdraft charges average some $57, much higher than the U.S. average of $34. Last year, banks in Britain generated an estimated $7 billion from overdraft and excess-borrowing charges, according to the Office of Fair Trading, the government's competition watchdog.
A good deal for the banks—except British consumers have been suing them like crazy over the last two years, claiming the fees breach consumer-protection laws. Pressed by the threat of litigation, the top five banks refunded customers $810 million in the first half of 2007 alone. Now, in a development that could influence similar battles in the U.S., the court will decide whether or not such charges breach consumer contract regulations, as the Office of Fair Trading claims they do.
Empower Yourself: Sue Your Bank
If the court agrees with the OFT, banks could be forced to refund overdraft charges dating back six years. A ruling isn't expected for several months at the earliest and appeals could drag the case out until next year.
If the banks are humbled, it will be because of the mad-dog zeal of the activists. One is Peter Brown. The soft-spoken history lecturer at the University of Wales has reclaimed a total of $13,000 in overdraft fees and resulting interest charges from four banks. He co-founded Legal Beagles - Consumer Rights Forum , a Web site that offers claim forms "for the self-litigating consumer." Says Brown, "Taking your bank to court is incredibly empowering."
The activists argue the banks' overdraft charges far exceed the actual cost of $9 or so they incur when customers overdraw on their account, and they should not reap such huge profits. Britain's banks argue these charges pay for a service provided to customers, so they are not covered by consumer protection laws that put a cap on penalties.
Settling With a Law Student
The British Bankers Assn. warns if the ruling goes against the banks, such standard perks as free checking and no-fee ATM services may go by the board. "There is no consequence-free result," warns the association's chief executive officer, Angela Knight. "If banks are put in a position where they have to change their business model, then they will. It may be there has to be a substantial change in how banks charge for their services."
Campaigners such as Stephen Hone wants banks to declare exactly how much it costs them every time a customer goes into the red without permission. Three years ago while still a law student, Hone became one of the first to take his bank, Abbey National, to court, claiming bank penalty charges must reflect the true cost of administering them. As the court date drew nearer, Abbey kept upping its offer to settle.
"By the time I finally settled for $10,000, it was around 600% more than I initially asked for," Hone says. His advice Web site, penaltycharges.com (motto: "So easy even a monkey can do it"), is attracting attention internationally. "I have e-mails from all over the world, including the U.S., from people wanting to know how they can challenge their banks."
Can the U.S. Be Far Behind?
No doubt, consumer groups and legal experts in the U.S. are watching the case in Britain closely. A bill in Congress would prevent U.S. banks from enrolling customers in overdraft-protection programs without their consent. Last year, U.S. banks and credit unions made $17.5 billion from such overdraft fees, according to The Center for Responsible Lending, a Washington nonprofit.
The banks in the U.S. are balking. But if high overdraft charges are banned in Britain and yet the banks there remain profitable, "it will undercut the U.S. banks' argument that they must impose these charges or they will go out of business," says Elizabeth Warren, a professor and bankruptcy expert at Harvard Law School. "The British may give us an example of profitability on fairer terms."
With Jessica Silver-Greenberg
Capell is a senior writer in BusinessWeek's London bureau.
msl:
Comment