Overdraft fees: Banks begin to retreat after customer attack on charges

[Legal Beagles]

Barclays makes first move as High Court ruling looms, Peter Hutchison writes.

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[Froggy]

Re: Overdraft fees: Banks begin to retreat after customer attack on charges

Overdraft fees: Banks begin to retreat after customer attack on charges



Last Updated: 6:41pm BST 30/05/2008





Barclays makes first move as High Court ruling looms, Peter Hutchison writes
Barclays Bank is to reduce its unauthorised overdraft charges before the High Court rules on whether they are unfair and other banks are expected to follow its retreat after widespread complaints from customers.
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More than two million people are likely to gain at Barclays alone, because the bank estimates a fifth of its 11 million customers slip into unauthorised overdrafts – and numbers are expected to rise as the credit crisis deepens.
The bank claims that the changes it announced this week will "significantly reduce the charges for customers who go beyond their agreed overdraft limit". However, rivals – such as Abbey – claim the move will make Barclays customers "worse off".
Barclays' announcement comes after high street banks lost the first stage of a High Court battle this month over the legality of penalty fees. There is currently a £35 fee per account per day for a payment that has bounced and a £30 fee per account per day for a payment that takes the customer beyond their authorised level of borrowing. The fees are capped at £90 a month.
Personal Reserve will be launched in August and is designed to act as a safety net for customers who exceed their overdraft limit, Barclays say. The average Personal Reserve amount will be £250.
For a one-off fee of £22, any customer who uses the reserve will have access to it for five working days. During this time, a customer will be able to access their Personal Reserve as often as they like and all payments will be honoured provided they do not exceed the reserve.
Those who go beyond the reserve will have to pay £8 for each transaction. No transaction or arrangement fees, or interest, will be charged on the amount used within the Personal Reserve.
Barclays announcement is in anticipation of the High Court ruling on unfair bank charges expected soon. Mark Parsons, managing director of current accounts at Barclays, said: "The Personal Reserve gives certainty about when payments will be paid and when they won't, with just two simple lower charges.
"Our new approach has been tested with consumers extensively over the past two years and we are confident that our products will promote account-switching to Barclays."
However, Abbey responded to Barclays' announcement with scepticism. A spokesperson for Abbey said: "Imagine a scenario whereby a customer with no authorised overdraft limit and with no money in their account has a guaranteed cheque leave their account for £9.99.
"The £22 fee is for five working days only – not for a month. As such, for a customer who remains beyond their overdraft limit, that is, in their personal reserve, for a month they would be charged £88."
Abbey claimed that the equivalent charge for their customers would be just £30. Customers would pay an Instant Overdraft Request Fee of £5 for a guaranteed cheque and an Instant Overdraft Monthly Fee of £25.
But a spokesman for Barclays disputed Abbey's claims. "The scenario they have set out is so specific, narrow and unrealistic that you could probably count on the fingers of one hand the customers who would find themselves in this situation.
"Being beyond your authorised level of borrowing throughout the entire month is not a sensible or realistic position to be in and we would want to talk to customers in that situation urgently to assess their needs and how we can help them.
"Furthermore, their scenario makes a huge and unrealistic assumption that the customer has just one payment of only £9.99 going out over the whole month. Highly unlikely.
"Much more probable is that you have several items of varying amounts going out. With Barclays this would be covered by the one-off £22 charge, while with Abbey and other banks the customer would be charged up to £35 for each and every transaction.
"The Abbey example falls to pieces as easily as making the customer's cheque a more realistic sum of £31 and speculating that they may have had one more payment of this sum going out – suddenly the cost is £95 for that day alone.
"Abbey's, and most other competitors' charging structures are highly complicated and difficult for customers to understand. The benefit with the new Barclays system is that a customer will know exactly what they are going to get charged and when, so they are highly unlikely to see charges stack up quickly as they may with other providers.
"We are being simple and transparent in our charging and we know customers will appreciate that."
Barclays also announced that its authorised overdraft rate will increase from 15.6 per cent to 17.9 per cent from June 2.
Meanwhile, the bank said it will also be offering a new range of current accounts, offering customers an interest-bearing current account and a new packaged account from early June.
Dame Angela Knight, the chief executive of the British Bankers' Association, refused to comment on the changes introduced by Barclays but defended bank charges in general.
She said: "The banks have actually made it clear that they see the unauthorised overdraft fees as a fee for a service.''

[Shazzaw]

Re: Overdraft fees: Banks begin to retreat after customer attack on charges

Personally think this is great and shows that cracks are starting to appear amongst the banking fraternity.

Abbey arguing with Barclays stance, Barclays arguing back - Angela Knight refusing to comment - this can only be seen as good news for the OFT and those trying to reclaim.

shazzaw