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Halifax to cut overdraft penalties for millions
Growing speculation that other banks will be forced to reduce charges ahead of a ruling by the Supreme Court
Mark Atherton
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div#related-article-links p a, div#related-article-links p a:visited { color:#06c; } Halifax yesterday announced it was cutting the fees it charges its five million current account customers when they go overdrawn.
The move prompted speculation that banks are coming under increasing pressure to reduce their charges in advance of next month’s ruling by the new Supreme Court on a test case involving the Office of Fair Trading and eight high street lenders.
If the judges accept the OFT’s argument that bank charges come within its remit this will pave the way for a further hearing to determine what a fair level of charges should be. In the event of the judgement going against them, Britain’s banks could have to refund up to £1 billion of excess charges to more than one million customers. They have already paid out £500 million in refunds to more than 350,000 customers before the test case brought a freezing of payouts pending the outcome of the judgement.
Earlier this month RBS Group, which has 12.5 million customers, said it would be cutting its unauthorised overdraft penalties. Fees for bouncing returned cheques and standing orders are being chopped from £38 to £5 while the monthly charge for unauthorised overdrafts is going down from £28 to £20. Since both RBS and Lloyds Banking Group, parent company of Halifax, are companies in which the Government has a significant stake, cynics have questioned whether the Government has applied pressure as a shareholder to force the banks to lower their charges. Barclays and HSBC, which do not have any Government shareholding, have both said they are not planning any cuts in their account charges before the Supreme Court’s decision is announced.
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The Treasury denied any suggestion it was using its stakes in RBS or Lloyds to influence the banks’ policies. However a spokesman added: “We have publicly issued a call for the the OFT and all the banks, not just those with a Government stake, to resolve the charging situation as soon as possible.”
Halifax insisted that the changes to its charging structure, which will come into effect on December 6, were prompted not by any government pressure, but by a desire to offer a much simpler way of calculating penalties on overdrawn current accounts.
Those with authorised overdrafts currently pay interest at an annualised rate of 19.5 per cent. These interest charges will be abolished in favour of a flat fee for each day they use their overdraft facility. Those with an overdraft of up to £2,500 will pay £1 a day, while those exceeeding £2,500 will pay £2 a day.
Customers with unauthorised overdrafts used to be hit by a treble whammy of charges. They would pay interest of 28.9 per cent, plus a fee of £28 a month for the unauthorised overdraft, plus transaction charges of £35 per day (with a maximum of three a day). These penalties will be swept aside in favour of a single £5 a day charge, bringing standard current account customers in line with those in the Reward current account.
Most industry experts welcomed the new charging structure. Sam Owens, of Moneyfacts, the financial research group, said: “It is simpler to understand and most people should end up paying a little less than they did before.”
Doug Taylor, of Which?, the consumer group, said: “It looks like a number of Halifax customers will benefit under the new charges, but that doesn’t mean the charges will be viewed as fair once the judgement in the court case has been delivered.”
Halifax to cut overdraft penalties for millions
Growing speculation that other banks will be forced to reduce charges ahead of a ruling by the Supreme Court
Mark Atherton
Recommend?
div#related-article-links p a, div#related-article-links p a:visited { color:#06c; } Halifax yesterday announced it was cutting the fees it charges its five million current account customers when they go overdrawn.
The move prompted speculation that banks are coming under increasing pressure to reduce their charges in advance of next month’s ruling by the new Supreme Court on a test case involving the Office of Fair Trading and eight high street lenders.
If the judges accept the OFT’s argument that bank charges come within its remit this will pave the way for a further hearing to determine what a fair level of charges should be. In the event of the judgement going against them, Britain’s banks could have to refund up to £1 billion of excess charges to more than one million customers. They have already paid out £500 million in refunds to more than 350,000 customers before the test case brought a freezing of payouts pending the outcome of the judgement.
Earlier this month RBS Group, which has 12.5 million customers, said it would be cutting its unauthorised overdraft penalties. Fees for bouncing returned cheques and standing orders are being chopped from £38 to £5 while the monthly charge for unauthorised overdrafts is going down from £28 to £20. Since both RBS and Lloyds Banking Group, parent company of Halifax, are companies in which the Government has a significant stake, cynics have questioned whether the Government has applied pressure as a shareholder to force the banks to lower their charges. Barclays and HSBC, which do not have any Government shareholding, have both said they are not planning any cuts in their account charges before the Supreme Court’s decision is announced.
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The Treasury denied any suggestion it was using its stakes in RBS or Lloyds to influence the banks’ policies. However a spokesman added: “We have publicly issued a call for the the OFT and all the banks, not just those with a Government stake, to resolve the charging situation as soon as possible.”
Halifax insisted that the changes to its charging structure, which will come into effect on December 6, were prompted not by any government pressure, but by a desire to offer a much simpler way of calculating penalties on overdrawn current accounts.
Those with authorised overdrafts currently pay interest at an annualised rate of 19.5 per cent. These interest charges will be abolished in favour of a flat fee for each day they use their overdraft facility. Those with an overdraft of up to £2,500 will pay £1 a day, while those exceeeding £2,500 will pay £2 a day.
Customers with unauthorised overdrafts used to be hit by a treble whammy of charges. They would pay interest of 28.9 per cent, plus a fee of £28 a month for the unauthorised overdraft, plus transaction charges of £35 per day (with a maximum of three a day). These penalties will be swept aside in favour of a single £5 a day charge, bringing standard current account customers in line with those in the Reward current account.
Most industry experts welcomed the new charging structure. Sam Owens, of Moneyfacts, the financial research group, said: “It is simpler to understand and most people should end up paying a little less than they did before.”
Doug Taylor, of Which?, the consumer group, said: “It looks like a number of Halifax customers will benefit under the new charges, but that doesn’t mean the charges will be viewed as fair once the judgement in the court case has been delivered.”
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