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The OFT's focus is primarily on current terms - since its powers are limited AFAIK to negotiating changes to future terms - or at most seeking injunctions to force same. 'Historical' terms are thus treated as a bit of an afterthought - which is unfortunate for those of us with a genuine 'lis' (law suit), since the new terms have (almost) all been totally rewritten with the OFT in mind, and viewing the older terms through that prism distorts things quite considerably.
On day 5, p.126:
[MR SNOWDEN (for HSBC):]
8 We say it is quite impossible to look at what the,
9 as it were, normal or predicted performance of
10 a contract is, if the contract is in these terms, and to
11 conclude that one of those ways is abnormal and the
12 other is normal, or indeed that they're both abnormal.
13 They are what the contract provides for.
14 THE MASTER OF THE ROLLS: These are post-dispute terms too,
15 are they?
16 MR SNOWDEN: No, these were December 2006.
17 THE MASTER OF THE ROLLS: Thank you.
I suppose it can't have been missed by their L'ships that those in fact contained a complete rewrite of the relevant terms, and were certainly not 'post-dispute' in any practical sense; but I can't help wondering a bit, given the artificial nature of the proceedings and the lack of any specific facts to get a grip on.
The richer understanding of the background that actual customers have could have provided a much better picture of what was really going on, and could have rebutted some of the unchallenged assertions, e.g. about manual intervention, that the banks' counsel made.
Given this, I thought a thread for relevant news stories relating to the history of the actual operation of the older T&Cs might be useful. I've got a few which I intend to introduce into evidence for various purposes if it should prove necessary, so I'll run some up the flagpole and see if anyone salutes, as the saying goes.
*All print stories are quoted under fair use*
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HERE WE HAVE EVIDENCE THAT THE PROCESS OF 'CONSIDERING' REQUESTS WAS AUTOMATED AS FAR BACK AS 98.
IT'S PRESENTED AS THOUGH IT REQUIRES SOME KIND OF ON-THE-FLY STATISTICAL ANALYSIS.
IN FACT THIS IS JUST THE 'UNADVISED' (I.E. CHARGEABLE) OD LIMIT WE ANECDOTALLY KNOW THE BANKS TO MAINTAIN.
IT IS HIGHLY LIKELY (PLAUSIBLE) THAT THE 'ADVISED' LIMIT BEARS SOME SIMPLE RELATIONSHIP TO THE UNADVISED (I.E. REAL) LIMIT - PERHAPS AS STRAIGHTFORWARD AS 75% OR SOMETHING.
IF SO THERE IS NOT EVEN ANY APPRECIABLE ADDITIONAL ONE-OFF PROGRAMMING COST INVOLVED IN HAVING TWO LIMITS.
OF COURSE PRETTY MUCH ANY PROGRAMMING COSTS WOULD BE VANISHINGLY SMALL COMPARED TO THE BANKS' REVENUE FROM THESE CHARGES.
*stax*
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Copyright 1998 Midland Independent Newspapers plc
Sunday Mercury
December 27, 1998, Sunday
SECTION: Pg. 9
LENGTH: 500 words
HEADLINE: CONSUMERS SEE RED OVER CASHPOINT OFFER
BYLINE: By Bernard Cole
BODY:
HIGH STREET banks were yesterday accused of luring customers into debt with a new breed of "intelligent" cashpoints.
Some machines are now allowing certain cash-card holders to take their accounts into the red or exceed their overdraft limit if they are considered to be "good customers".
But the Consumers' Association last night warned that people - already debt -laden after Christmas - could be landed with huge bank charges in the New Year after inadvertently going into the red.
Intelligent cashpoints were introduced by the Midland Bank and its telephone banking off-shoot, First Direct, within the past few months.
A spokesman for NatWest said it operated a similar scheme for a few customers but he was unable to say how long it had been running.
None of the banks would discuss exact details of how intelligent cashpoints work - claiming the information was "commercially sensitive".
And they said they had decided not to publicise the new service because it might "encourage people to get into debt".
But it appears an intelligent cashpoint can decide whether or not a customer can take out extra funds by looking at previous account details.
A spokeswoman for the Midland Bank said: "If a customer wants to take money out they haven't got, that is their decision.
"And for some of our good customers, we do not want to leave them financially embarrassed and we are prepared to be flexible.
"The system is controlled and based on their relationship with the bank. But as customers would become liable for bank charges, they would be better to phone and arrange an extended overdraft."
A First Direct spokeswoman denied the scheme was intended to generate more income - in charges - for the bank.
But she admitted customers exceeding overdraft limits would be liable for the standard penalty of pounds 35 a month together with a charge of pounds 8.50 for each day the borrowing increased.
"Many customers find they get close to their limits at the end of the month," she said.
"In the past, if we were presented with a cheque that would take someone over their limit, we would be happy to honour it but a cashpoint would not allow any withdrawals.
"We decided this was not consistent and cashpoints will now issue money to good customers.
"This has been the case for the past couple of months but we have tried to keep it quiet so that people are not encouraged to go overdrawn."
Neil Walkling, principal money researcher with the Consumers' Association, said intelligent cashpoints set a worrying new trend among banks.
"People could end up unexpectedly having to pay whopping bank charges at the end of the month," he said.
"Banks charge much less for authorised overdrafts than for unauthorised ones.
"If they want to loan customers more money, they should flash a message on the cashpoint's screen saying they have reached their limit and to contact the bank for a bigger overdraft."
see Mercury comment - p14.
LOAD-DATE: December 31, 1998
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IN THIS ONE WE HAVE THE BRITISH BANKING INDUSTRY'S REP CLAIMING THAT MOST UNAUTH OD 'REQUESTS' ARE 'DECIDED' BY MANUAL INTERVENTION.
*stax*
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THIS TRANSCRIPT IS ISSUED ON THE UNDERSTANDING
THAT IT IS TAKEN FROM A LIVE PROGRAMME AS IT WAS
BROADCAST. THE NATURE OF LIVE BROADCASTING
MEANS THAT NEITHER THE BBC NOR THE PARTICIPANTS
IN THE PROGRAMME CAN GUARANTEE THE ACCURACY
OF THE INFORMATION HERE.
MONEY BOX
Presenter: PAUL LEWIS
TRANSMISSION: 18 FEBRUARY 2006 1200-1230 GMT BBC RADIO 4
LEWIS: Hello. In today’s programme, the banks
respond to claims that they’re breaking the law when they charge us
£30 for going overdrawn or missing a credit card payment. British Gas
announces a record rise in energy bills, but what about people who
can’t afford another £3.25 a week to heat their homes? Bob Howard’s
with me today.
HOWARD: Looking at a new online course for anybody
who wants to understand their company pension scheme.
ALEXANDER: Pensions are not that complicated. They can be
explained in everyday language, which everybody can understand.
LEWIS: And as more people over pension age stay on at
work, are employers telling their staff about the big changes that start
later this year?
But first, banks are being challenged this week to justify their penalty
charges of around £30 every time we go overdrawn without permission
or miss a credit card payment. The charges are particularly hard of
course on people with limited incomes. Students at Glasgow University
are estimated to pay more than £1 million a year in penalties, and this
week they’ve been told to write to the banks challenging their right to
levy them. The challenge depends on whether the £30 charge is in fact
what it costs the bank to return a payment if we go overdrawn and write
to us to tell us, a point raised with us this week by Money Box listener
Mike from North Yorkshire.
MIKE: The last time the problem kicked in for me was
when the bank put its charges right at the end of the month, just before I
got paid. I didn’t have the funds to meet it and so two of my payments
were bounced and I was charged £36 for each one, so that’s £72. And
I’m a pensioner now. It’s just an absolutely ridiculous charge. I’m
concerned that the charge that banks lay does not reflect the amount of
effort that they put into producing the charge. I’m a computer
programmer and I know exactly what’s involved in the activities that
they do. I think that the charges are far in excess of what it actually
costs the bank to do them. You get overdrawn £3 and you’re charged
£36. It’s absolutely ridiculous.
LEWIS: And it’s not just our listeners who are
concerned. Last July the Office of Fair Trading warned eight major
credit card companies that their default charges were what it called
“excessive” and could be unlawful. Well that view is supported by a
Scottish lawyer, Mike Dailly, who’s behind the student campaign and
who’s drawn up a letter for customers to send to their bank if it tries to
charge them £30 when they break the rules. The letter’s being rolled
out across all Citizens Advice Bureaux in Scotland and explains why
the charge is unlawful and why you won’t pay it. Well Mike Dailly’s in
Glasgow. Mike, if people don’t look after their accounts properly, why
shouldn’t the banks charge them?
DAILLY: Well the problem is that the law says that when
somebody breaches their contract – for example you go over your
overdraft limit without permission – the bank’s only entitled to recover
its actual loss. Now in 1998 the average bank charge in the UK was
£12. It’s now on average about £67. That’s a 500% increase. And
from a legal point of view what I’m saying is that these charges don’t
actually reflect real loss. They’re effectively penalty charges.
LEWIS: So you’re not against the banks recovering the
real cost because otherwise obviously good customers would be
subsidising bad, wouldn’t they? You’re against them charging more
than those costs?
DAILLY: That’s right. I mean I think, as your listener
said, you get an automated letter from your bank for going over your
limit. That probably costs something like 50 pence. Why should
somebody get a £39 letter for that transaction? And I think it’s
interesting that when the banks gave evidence to the Treasury
Committee in the House of Commons last year, they said that the way
they work out their charges is they’re recovering all of their debt
recovery costs on a global basis – so, for example, that would include
commercial debt write off, debt recovery for people that default on their
loans. Why should the ordinary citizen have to pay for the banks
losses?
LEWIS: Okay. Ian Mullen from the British Bankers’
Association, how do you respond to those charges - you’re charging far
more than it actually costs you?
MULLEN: No, we’re not. The banking systems are geared
towards an automatic process and when a cheque or another charge
sends an account overdrawn or over an agreed limit, this involves
manual intervention to extract the item from the day’s work, to research
the customer’s recent credit profile and the working of the account, and
then a managerial decision on whether or not to return the unpaid item.
LEWIS: So every time someone breaches the rules,
humans actually intervene? It’s not all done in an automatic way by the
computer that bungs the letter in the post?
MULLEN: In the majority of cases, yuh.
LEWIS: So …
DAILLY: Could I come in there?
LEWIS: Yes, of course.
DAILLY: Because so many people, they have transactions
declined and I don’t believe for a second, Ian, that there’s a human
being that’s declining the transaction. It’s automated.
MULLEN: Well, as I say, I don’t believe that that is the
case in the majority of instances.
LEWIS: But, as Mike Dailly said, when the banks gave
evidence to the Treasury Select Committee both the boss of Barclays
and of Royal Bank of Scotland did say they added up all the charges for
all the defaults – and that includes pursuing some people through the
courts – and divided them by the number of people who make mistakes.
So that’s not quite the same as what you’re saying. It’s implying that
people like our listener, Mike, was being charged partly for taking
someone else to court who refused to pay up.
MULLEN: Well I’d have to investigate that. That’s a piece
of knowledge that I wasn’t made aware of, so …
LEWIS: Well it was in the Treasury Select Committee
evidence earlier this year.
MULLEN: … but I’ll come back to you with a response on
that.
LEWIS: Mike Dailly, this letter’s being rolled out across
Scotland – a lot of students are issuing it, a lot of people at CAB’s.
What’s the response from the banks? Do they pay up or do they defend
it as Ian Mullen has here?
DAILLY: In most cases the banks are paying up, in our
experience. Some people are getting all of their money back. We get
e-mails from people saying, ‘We used your letter and we got £900
back’. Some people are only getting a percentage of the charges, but
ultimately we’re finding it’s very successful. And what we’re finding is
that the banks are very reluctant to see this issue going before senior
courts.
LEWIS: Right Ian Mullen, if you’re right and if the
banks are so confident of their ground, why don’t they just send these
letters back and say pay up, take us to court?
MULLEN: Well we’re dealing mostly with students here in
this particular discussion and of course banks are very keen to see that
the student body, if you will, is serviced optimally.
LEWIS: So they’re doing it because they’re students and
because they’re in Scotland?
MULLEN: Well you know they get free overdrafts and …
No students today, particularly on the basis that the government has
withdrawn the student grants, we know that they are in financial
difficulty.
LEWIS: Mike Dailly, can I just ask … You’re doing this
in Scotland. Is it a Scots law issue, or does it apply to the whole of the
UK?
DAILLY: It applies across the UK. The law’s quite the
same on both sides of the border. I would say, Ian, that most people
that are using our letter are not students and many of them live in
England and Wales and they’re getting their money back from the
banks.
LEWIS: Okay, Mike. Just very briefly, Ian – you’ve got
all this criticism not just from individual lawyers, from the Office of
Fair Trading, from the Treasury Select Committee. Can you hold the
line on charges?
MULLEN: I sincerely hope we can because one of the
alternatives, as happens on the continent, is that the cheque is simply
bounced.
LEWIS: Okay. Thanks very much to Ian Mullen, who’s
Chief Executive of the British Bankers’ Association, and Mike Dailly, a
principal solicitor at Govan Law Centre. And you can have your say on
bank charges on our website, which is bbc.co.uk/moneybox, and there
are links to that letter to write to the bank if you have an objection also
at the same address.
**REST OF TRANSCRIPT OMITTED AS IRRELEVANT**
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BIT OF A LONG ONE - THE MOST USEFUL BIT IS TOWARDS THE BOTTOM WHERE THE DIFFICULTY OF SWITCHING (FOR SMALL BUSINESSES IN THIS CASE) IS DISCUSSED.
*stax*
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Copyright 1991 Times Newspapers Limited
Sunday Times
June 2, 1991, Sunday
SECTION: Features
LENGTH: 3197 words
HEADLINE: On the rack
BODY:
Pamela Sharp picked up The Sunday Times last weekend and discovered she was not alone in the torture chamber. Already ''kicked in the teeth'' by her high street bank, she read that small businesses like hers were on the rack all over the country as panicking bankers squeezed out their lifeblood.
Sharp (right), who runs a security firm in the West Midlands, is one of a huge army of struggling entrepreneurs, born of the Thatcher era, who have found their friendly bank managers transformed overnight into figures of loathing because of a crisis of competence in the banking trade.
Lulled by the listening bank, the friendly griffin, the black horse and the other feel-good symbols of 1980s banking, these customers have suddenly woken up to a wave of sharp practice and exorbitant charges and to interest rates that go up when the government says they are comin down.
Letters flooding in to The Sunday Times have revealed a desperate state of affairs. On the one side are the banks, ruthlessly determined to shore up their balance sheets during a recession. On the other are the customers, who feel they are being plundered with impunity and thrown on to the scrapheap little fish sacrificed to pay for the banks' own incompetence in dealing with the big fish of corporae Britain and the Third World.
In between, in many cases, is a generation of bewildered and embarrassed bank managers forced by head office to take up the knife against old and trusted customers. A Barclays manager, who requested anonymity, wrote in despair at being caught between ''a rock and a hard place''.
''In the past, when we have had good businesses on our books which have encountered temporary trading difficulties, we simply reduced or suspended interest charges for a time. When Barclays was actually run by bank managers this was an ideal solution for bank and customer alike. Now that our head office is awash with accountants, however, such a practice is officially frowned upon.
''I and many other Barclays managers would agree that the business economy is in a terrible condition,'' he said. ''We would even agree that the banks are contributing to that condition when in fact they should be alleviating it.''
At a time when the public mood seems to be turning against the culture that has governed Britain for the past decade, the victims make it plain that the small-business bedrock of Toryism is at risk.
But the government proclaims itself helpless. Eric Forth, the Department of Employment junior minister responsible for small businesses, sai yesterday: ''I am still waiting for someone to tell me what I can or should do. I am also waiting for specific and positive evidence for what is going wrong here.''
WHAT do the small businesses accuse the banks of doing? Very simply, robbing them when they are at their most vulnerable to make up for losses that are the banks' own fault. Some bankers and financial commentators dismiss such complaints as naive, arguing that it is time for 1980s entrepreneurs to enter the real, harsh world.
But the entrepreneurs invoke natural justice. Most people nowadays know how painful it is when mortgage costs soar as a result of government interest rate policy. What the banks are doing is something else: hiking interest rates, hammering customers with punitive charges and according to their victims engaging in behaviour little short of trickery in order to get collateral for previously unsecured loans.
The principal weapon is the ''margin'', the difference between the bank's base rate and the interest it actually charges customers. Today, mortgage customers pay a very small margin because the mortgage market is so competitive, as do big corporations with the clout to negotiate. Little companies, however, feel themselves at the banks' mercy.
Pamela Sharp has seen a Midland Bank loan, agreed three years ago at one point over the base rate, go up steeply in the past few months to six points over base. She has now been forced to re-mortgage her home to pay off the loan.
She told The Sunday Times: ''I feel very bitter about it. We are the silent sufferers, the small businesses, while the banks appear to be profiteering and abandoning their business customers.''
John Taylor, owner and managing director of the Cricket St Thomas country house and wildlife park near Chard in Somerset the house used for the BBC series To the Manor Born was told by Lloyds Bank last week that the margin on his Pounds 2.5m overdraft facility had been raised from 1.5% to 3% over base rate, costing him nearly Pounds 40,000 extra a year. Last year, on the bank's advice, he had turned down the offer of a Pounds 100,000 low-interest loan from his brewers.
''They are absolute *******s these people,'' he said. ''I just can't understand it. Our security is a lot better than most. We have had no downturn in visitors. And what galls me most of all is that they can do this without discussing it.''
He warned: ''The government hasn't a hope in hell if it allows this sort of thing to go on. The chancellor has got to start banging the table.''
Peter Beamand, whose family has run a printing firm in east London for almost a century, was appalled to learn last month that the Midland Bank had increased its charge on an overdraft from 3% to 7% above the base rate.
Beamand said: ''The new rate just came out of the blue. The bank knows I can afford to pay, so it's an easy way of making money. I am being ripped off, and I cannot fight back.''
A Bristol businessman, who chooses not to be named, is looking to sell his Pounds 1m engineering firm after Lloyds increased his charge on an Pounds 80,000 overdraft last month by 1% to 4% above the base rate. He said: ''This is the final straw. The banks are providing no relief and I can no longer put up with the strain. It seems they are deliberately making life difficult so that they can pull the rug and get their hands on the company's assets.''
John Sugden, who runs Three Counties Toys in Haslemere, Surrey, says his retiring NatWest manager promised him a reduction from 3% to 2.5% in the margin on his Pounds 70,000 loan facility, which is backed by Pounds 700,000 of assets. Instead, the new manager increased the margin to 3.5%. ''How can there be any justification for this?'' Sugden asks.
Confronted with these and many other complaints, the banks insist they have no across-the-board policy of increasing their margins on business loans and overdrafts. Where margins have been raised, they say, this is due to increased risk, because of the circumstances of the company concerned.
''I think you will find that most loans do follow the base rate,'' said Sir Nicholas Goodison, chairman of the TSB and president of the British Bankers' Association. Sir John Quinton, chairman of Barclays, said: ''All Barclays' rates are linked to a certain number of points above base rate and when base rate changes we press a button on the computer and they're all automatically brought down.''
Gerry Solomon, senior general manager of UK retail banking at Lloyds Bank, said: ''There is much loose comment about banks in general charging inflated margins over bank base rates.'' A Midland Bank spokesman insisted: ''There is no blanket policy of increasing margins.''
But the denials are shallow. Evidence in the possession of The Sunday Times shows clearly that the big banks have a deliberate policy of increasing margins, for all companies.
A Midland Bank internal memo to corporate directors from AI Mullen, diretor of UK corporate banking, last September spelled out the objectives. Mullen told his officers: ''Additional income should be sought by increased interest margins, fees, and by cross-selling to our existing customers.'' Mullen added: ''We must use our professional knowledge to decide whether the customer has a sufficient chance of surviving. If the decision is positive, we must seek additional security to protect the bank and, if the decision is negative, then we must seek to terminate our relationship with the customer one way or another.''
KC Dilley, the senior corporate manager at Barclays Business Centre in Barking, Essex, wrote to a customer last month advising ''that the bank has been revising its policy towards interest margins on a nationwide basis''.
He continued: ''For some time the bank has been looking to increase its margins as other banks have already done, but in view of recent, relatively high base rates and the fact that conditions recently have been particularly difficult in some sectors, it has waited until signs that rates were decreasing before making this move.'' Barclays head office maintained that this did not reflect bank policy.
Lloyds Bank said it cut lending rates to small businesses by half a point last week. However, its average margin has increased by 0.7% since the start of last year, and The Sunday Times has received a long string of complaints from customers about a disguised increase in margins, achieved by moving borrowers on to the bank's monthly managed-rate system.
INCREASED margins are only the tip of the iceberg as far as the war between the banks and their small business customers is concerned.
Usually without notification, banks are also imposing new charges, or sharp increases in charges, on their business customers. Banks are calling in loans or overdrafts at impossibly short notice. And bank managers add to the financial difficulties of troubled companies by levying hefty fees for ''monitoring'' accounts.
Ken Wilson, a Maidenhead businessman, exceeded his overdraft limit and received 10 letters from NatWest six of them in one day advising him that direct debits on his account could not be paid. Te bank charged him Pounds 35 for each letter and his wife has had to take a part-time job to find the Pounds 350.
Ian Popham, a partner in Vanpower, a courier company in Watford, Hertfordshire, said the Midland increased the charge on his Pounds 25,000 overdraft by 1% to 4% over the base rate and imposed a monthly management fee of Pounds 100.
He said: ''I regard this fee as additional interest, which means I am now effectively paying 23.5% or 12% above base. We are a healthy company and the bank is taking advantage of our position. We are being ripped off. We'd be better off going to a backstreet loan shark.''
Lynn Lewis, managing director of a Middlesex company that makes nautical gifts, now has to pay NatWest handling charges of 58p per cheque instead of 45p, an increase of 29%.
''It's iniquitous. The bank has ignored our request for a published tariff and found a sneaky way of charging me more when I thought I had done a deal with them,'' said Lewis.
Tony Holtam, 31, who runs a fruit and vegetable shop in Cowbridge, near Cardiff, says the future of his business is threatened because of high charges imposed by the Midland. He is now paying more than Pounds 25,000 a year in interest, which he says is crippling his business.
''I feel I am playing a game of Russian roulette with the bank,'' Holtam said. ''I have risked my life, my wife and my children to build up this business. I will never do it again because there is no incentive.''
A manufacturer of industrial units based in the West Midlands, with a turnover of Pounds 4m, complained to the chairman of Barclays after it imposed a Pounds 450 fee for ''management time'' to review one of the company's six business accounts. ''The bank looks at the accounts once or twice a year. If they make a charge on each account we could be paying more than Pounds 5,000 for work that is to the bank's benefit, not to ours,'' the company's financial director said.
''It really is immoral, because the bank is sitting on our money, they think they can just dip into it and take whatever they want.''
A Hampshire soft furnishing company has seen bank service charges increase by 75% over the past two quarters. Its managing director said: ''I feel helpless. We are dealing with Big Brother here. We have not received an explanation for these charges.''
Patrick Monvid, managing director of Clockbrokers, a clock importing firm near Northampton, checked with his bank after reading The Sunday Times last weekend. ''We had no idea what we were paying. NatWest had never bothered to inform us. I found to my astonishment that we were being charged 33.25%,'' he said.
Monvid added: ''We are a sound company. It's a normal business account without an agreed ceiling for an overdraft facility. The bank manager had always made it clear to me that occasional overdrawing was acceptable. He never pointed out that it was costing the earth.''
Another company had its overdraft rate fixed at 3% above base rate two years ago. Last Monday, out of curiosity, the managing director rang the bank to check that this still applied. He was told that the margin had been increased to 5% above base six months ago, without notification.
Sir Nicholas Goodison commented: ''There is no excuse for not having a close working relationship where things are explained. Customers must be open with their banks, but banks must be open with their customers.''
Most disturbing of all, there are cases where the banks have requested additional security as part of a negotiated increase in a firm's overdraft limits. They have then kept the additional security, against the existing overdraft, but refused an increase in the limit.
Elaine Kershberg and her husband run an electrical retail shop in central London, where falling takings, increased rent and the uniform business rate led them to ask the Finchley branch of the Bank of Ireland for help. Their existing Pounds 12,000 overdraft was unsecured, but they agreed to allow the bank a ''second charge'' on their home as security to increase this facility to Pounds 20,000. The shock, they say, came after they had signed the agreement: the bank turned down the request for an increase, but kept the second charge as security on their old, smaller overdraft.
''I think we were entrapped,'' said Elaine Kershberg. ''I feel that the Bank of Ireland should not be allowed to get away with this behaviour.''
Palace Books Ltd of Caernarvon, Gwynedd, had a similar experience. ''An increased overdraft was agreed with our local Midland corporate manager and then withdrawn six weeks later. Two freehold properties given as security for this specific loan were not released by the bank and nor were the fees of almost Pounds 800 charged for the increased facility refunded,'' said David Jarvis, the company secretary.
''Cheques issued in good faith before the withdrawal of the facility were dishonoured and we were charged Pounds 60 a time for their return.''
Such accounts add ammunition to the charges of Walter Herriot, a former Barclays manager now running the St John's Innovation Centre in Cambridge, who argues that most banks are no longer supportive of business. He said: ''The problem is not just the cost of money, it is the attitude of the banks towards risk. Over the past five years the banks have lost their understanding of risk. What they do now is pawnbroking. They are only really interested in security.''
EQUALLY galling for businessmen caught in this trap are the responses they receive from many MPs, ministers and officials whom they ask for help and advice.
When a businessman wrote to Robin Leigh-Pemberton, the governor of the Bank of England, the reply from David Carse, manager in the banking supervision division, said: ''The interest rates charged by the banks are a matter for their commercial judgment and the Bank of England is not in a position to intervene on behalf of an aggrieved customer. Nor am I aware of any other governmental body to whom you could appeal on this matter.''
At the Department of Employment, Eric Forth said he understood the ''real concerns'' of businesses that feel they have been unfairly treated by the banks, but he defended the banks' lending policies. ''In so far as small businesses seem to be riskier, it is not unreasonable for the banks to charge more. It is their money they are lending, not ours,'' he said.
There is a banking ombudsman who deals with complaints against the banks. But although he can take up cases on behalf of self-employed businessmen and partnerships, he is not empowered to handle complaints about the banks from limited companies.
When David Simpson, a businessman in Camberley, Surrey, wrote to Julian Critchley to complain about increasing margins, the Tory MP replied: ''Whilst I sympathise with the problems you are having, the question of bank interest rates is not really one for a member of parliament.''
Simpson then tried Norman Lamont, the chancellor. A Treasury official answered on Lamont's behalf: ''As I am sure you will appreciate, the government cannot intervene in what is a commercial matter between yourself and your bank. The rates which are charged to individual customers, or for certain products, do not always follow base rates exactly. This may reflect a range of factors, for example current competitive pressures, or the degree of credit risk which a particular loan is seen to represent.
''I can only suggest that if you are dissatisfied with the rate of interest you are paying you may wish to 'shop around' for a more favourable rate.''
No such luck. With all the banks seeking to rein back their lending, businesses seeking to move their accounts are likely to be rebuffed.
The Midland's memo of last September advised managers to be ''very wary of new business coming from other banks''. Sir John Quinton of Barclays said: ''We look three to four times as hard at any prospective customer who wants to change to Barclays from another bank. I agree it is not easy for many small businesses to transfer their accounts.''
Robin Mclean, a GP from north London who is borrowing to invest in new medical equipment for his practice, knows the truth of this. After discovering last week that he was paying 5% above the base rate for a Barclays overdraft, Mclean contacted NatWest and was offered a ''daily rate'' of 22.5%, more than double the margin charged by Barclays. ''It's clear they don't want the business. They are not giving anybody on the receiving end of these charges a chance to make a living,'' he said.
Aggrieved business customers should not be frightened of taking up their complaints at the highest level within their bank. Peter Blagg, who runs a corporate communications consultancy in Hertfordshire, was examining his NatWest statement and discovered that an overdraft charge of 1.2%, or Pounds 500, had been levied without any letter advising him of it. The bank also increased his margin above base rate by 0.5% to 6.5%.
He wrote to the chief executive of NatWest, Tom Frost, questioning the legality of the charge and objecting to the increased margin. Eventually, both were dropped.
Another company, Power Packing Export Services of Loughton, Essex, objected to a 0.5% increase in its Barclays margin, and had the increase cancelled.
''Too many people are frightened of their bank manager and do not challenge what they do,'' said Blagg. ''The proper attitude is to treat your bank as only one of your suppliers.''
LOAD-DATE: June 12, 1991
On day 5, p.126:
[MR SNOWDEN (for HSBC):]
8 We say it is quite impossible to look at what the,
9 as it were, normal or predicted performance of
10 a contract is, if the contract is in these terms, and to
11 conclude that one of those ways is abnormal and the
12 other is normal, or indeed that they're both abnormal.
13 They are what the contract provides for.
14 THE MASTER OF THE ROLLS: These are post-dispute terms too,
15 are they?
16 MR SNOWDEN: No, these were December 2006.
17 THE MASTER OF THE ROLLS: Thank you.
I suppose it can't have been missed by their L'ships that those in fact contained a complete rewrite of the relevant terms, and were certainly not 'post-dispute' in any practical sense; but I can't help wondering a bit, given the artificial nature of the proceedings and the lack of any specific facts to get a grip on.
The richer understanding of the background that actual customers have could have provided a much better picture of what was really going on, and could have rebutted some of the unchallenged assertions, e.g. about manual intervention, that the banks' counsel made.
Given this, I thought a thread for relevant news stories relating to the history of the actual operation of the older T&Cs might be useful. I've got a few which I intend to introduce into evidence for various purposes if it should prove necessary, so I'll run some up the flagpole and see if anyone salutes, as the saying goes.
*All print stories are quoted under fair use*
------------------------------- merged -------------------------------
:beagle:
***********************************************
HERE WE HAVE EVIDENCE THAT THE PROCESS OF 'CONSIDERING' REQUESTS WAS AUTOMATED AS FAR BACK AS 98.
IT'S PRESENTED AS THOUGH IT REQUIRES SOME KIND OF ON-THE-FLY STATISTICAL ANALYSIS.
IN FACT THIS IS JUST THE 'UNADVISED' (I.E. CHARGEABLE) OD LIMIT WE ANECDOTALLY KNOW THE BANKS TO MAINTAIN.
IT IS HIGHLY LIKELY (PLAUSIBLE) THAT THE 'ADVISED' LIMIT BEARS SOME SIMPLE RELATIONSHIP TO THE UNADVISED (I.E. REAL) LIMIT - PERHAPS AS STRAIGHTFORWARD AS 75% OR SOMETHING.
IF SO THERE IS NOT EVEN ANY APPRECIABLE ADDITIONAL ONE-OFF PROGRAMMING COST INVOLVED IN HAVING TWO LIMITS.
OF COURSE PRETTY MUCH ANY PROGRAMMING COSTS WOULD BE VANISHINGLY SMALL COMPARED TO THE BANKS' REVENUE FROM THESE CHARGES.
*stax*
**********************************************
Copyright 1998 Midland Independent Newspapers plc
Sunday Mercury
December 27, 1998, Sunday
SECTION: Pg. 9
LENGTH: 500 words
HEADLINE: CONSUMERS SEE RED OVER CASHPOINT OFFER
BYLINE: By Bernard Cole
BODY:
HIGH STREET banks were yesterday accused of luring customers into debt with a new breed of "intelligent" cashpoints.
Some machines are now allowing certain cash-card holders to take their accounts into the red or exceed their overdraft limit if they are considered to be "good customers".
But the Consumers' Association last night warned that people - already debt -laden after Christmas - could be landed with huge bank charges in the New Year after inadvertently going into the red.
Intelligent cashpoints were introduced by the Midland Bank and its telephone banking off-shoot, First Direct, within the past few months.
A spokesman for NatWest said it operated a similar scheme for a few customers but he was unable to say how long it had been running.
None of the banks would discuss exact details of how intelligent cashpoints work - claiming the information was "commercially sensitive".
And they said they had decided not to publicise the new service because it might "encourage people to get into debt".
But it appears an intelligent cashpoint can decide whether or not a customer can take out extra funds by looking at previous account details.
A spokeswoman for the Midland Bank said: "If a customer wants to take money out they haven't got, that is their decision.
"And for some of our good customers, we do not want to leave them financially embarrassed and we are prepared to be flexible.
"The system is controlled and based on their relationship with the bank. But as customers would become liable for bank charges, they would be better to phone and arrange an extended overdraft."
A First Direct spokeswoman denied the scheme was intended to generate more income - in charges - for the bank.
But she admitted customers exceeding overdraft limits would be liable for the standard penalty of pounds 35 a month together with a charge of pounds 8.50 for each day the borrowing increased.
"Many customers find they get close to their limits at the end of the month," she said.
"In the past, if we were presented with a cheque that would take someone over their limit, we would be happy to honour it but a cashpoint would not allow any withdrawals.
"We decided this was not consistent and cashpoints will now issue money to good customers.
"This has been the case for the past couple of months but we have tried to keep it quiet so that people are not encouraged to go overdrawn."
Neil Walkling, principal money researcher with the Consumers' Association, said intelligent cashpoints set a worrying new trend among banks.
"People could end up unexpectedly having to pay whopping bank charges at the end of the month," he said.
"Banks charge much less for authorised overdrafts than for unauthorised ones.
"If they want to loan customers more money, they should flash a message on the cashpoint's screen saying they have reached their limit and to contact the bank for a bigger overdraft."
see Mercury comment - p14.
LOAD-DATE: December 31, 1998
------------------------------- merged -------------------------------
:beagle:
**********************************************
IN THIS ONE WE HAVE THE BRITISH BANKING INDUSTRY'S REP CLAIMING THAT MOST UNAUTH OD 'REQUESTS' ARE 'DECIDED' BY MANUAL INTERVENTION.
*stax*
**********************************************
THIS TRANSCRIPT IS ISSUED ON THE UNDERSTANDING
THAT IT IS TAKEN FROM A LIVE PROGRAMME AS IT WAS
BROADCAST. THE NATURE OF LIVE BROADCASTING
MEANS THAT NEITHER THE BBC NOR THE PARTICIPANTS
IN THE PROGRAMME CAN GUARANTEE THE ACCURACY
OF THE INFORMATION HERE.
MONEY BOX
Presenter: PAUL LEWIS
TRANSMISSION: 18 FEBRUARY 2006 1200-1230 GMT BBC RADIO 4
LEWIS: Hello. In today’s programme, the banks
respond to claims that they’re breaking the law when they charge us
£30 for going overdrawn or missing a credit card payment. British Gas
announces a record rise in energy bills, but what about people who
can’t afford another £3.25 a week to heat their homes? Bob Howard’s
with me today.
HOWARD: Looking at a new online course for anybody
who wants to understand their company pension scheme.
ALEXANDER: Pensions are not that complicated. They can be
explained in everyday language, which everybody can understand.
LEWIS: And as more people over pension age stay on at
work, are employers telling their staff about the big changes that start
later this year?
But first, banks are being challenged this week to justify their penalty
charges of around £30 every time we go overdrawn without permission
or miss a credit card payment. The charges are particularly hard of
course on people with limited incomes. Students at Glasgow University
are estimated to pay more than £1 million a year in penalties, and this
week they’ve been told to write to the banks challenging their right to
levy them. The challenge depends on whether the £30 charge is in fact
what it costs the bank to return a payment if we go overdrawn and write
to us to tell us, a point raised with us this week by Money Box listener
Mike from North Yorkshire.
MIKE: The last time the problem kicked in for me was
when the bank put its charges right at the end of the month, just before I
got paid. I didn’t have the funds to meet it and so two of my payments
were bounced and I was charged £36 for each one, so that’s £72. And
I’m a pensioner now. It’s just an absolutely ridiculous charge. I’m
concerned that the charge that banks lay does not reflect the amount of
effort that they put into producing the charge. I’m a computer
programmer and I know exactly what’s involved in the activities that
they do. I think that the charges are far in excess of what it actually
costs the bank to do them. You get overdrawn £3 and you’re charged
£36. It’s absolutely ridiculous.
LEWIS: And it’s not just our listeners who are
concerned. Last July the Office of Fair Trading warned eight major
credit card companies that their default charges were what it called
“excessive” and could be unlawful. Well that view is supported by a
Scottish lawyer, Mike Dailly, who’s behind the student campaign and
who’s drawn up a letter for customers to send to their bank if it tries to
charge them £30 when they break the rules. The letter’s being rolled
out across all Citizens Advice Bureaux in Scotland and explains why
the charge is unlawful and why you won’t pay it. Well Mike Dailly’s in
Glasgow. Mike, if people don’t look after their accounts properly, why
shouldn’t the banks charge them?
DAILLY: Well the problem is that the law says that when
somebody breaches their contract – for example you go over your
overdraft limit without permission – the bank’s only entitled to recover
its actual loss. Now in 1998 the average bank charge in the UK was
£12. It’s now on average about £67. That’s a 500% increase. And
from a legal point of view what I’m saying is that these charges don’t
actually reflect real loss. They’re effectively penalty charges.
LEWIS: So you’re not against the banks recovering the
real cost because otherwise obviously good customers would be
subsidising bad, wouldn’t they? You’re against them charging more
than those costs?
DAILLY: That’s right. I mean I think, as your listener
said, you get an automated letter from your bank for going over your
limit. That probably costs something like 50 pence. Why should
somebody get a £39 letter for that transaction? And I think it’s
interesting that when the banks gave evidence to the Treasury
Committee in the House of Commons last year, they said that the way
they work out their charges is they’re recovering all of their debt
recovery costs on a global basis – so, for example, that would include
commercial debt write off, debt recovery for people that default on their
loans. Why should the ordinary citizen have to pay for the banks
losses?
LEWIS: Okay. Ian Mullen from the British Bankers’
Association, how do you respond to those charges - you’re charging far
more than it actually costs you?
MULLEN: No, we’re not. The banking systems are geared
towards an automatic process and when a cheque or another charge
sends an account overdrawn or over an agreed limit, this involves
manual intervention to extract the item from the day’s work, to research
the customer’s recent credit profile and the working of the account, and
then a managerial decision on whether or not to return the unpaid item.
LEWIS: So every time someone breaches the rules,
humans actually intervene? It’s not all done in an automatic way by the
computer that bungs the letter in the post?
MULLEN: In the majority of cases, yuh.
LEWIS: So …
DAILLY: Could I come in there?
LEWIS: Yes, of course.
DAILLY: Because so many people, they have transactions
declined and I don’t believe for a second, Ian, that there’s a human
being that’s declining the transaction. It’s automated.
MULLEN: Well, as I say, I don’t believe that that is the
case in the majority of instances.
LEWIS: But, as Mike Dailly said, when the banks gave
evidence to the Treasury Select Committee both the boss of Barclays
and of Royal Bank of Scotland did say they added up all the charges for
all the defaults – and that includes pursuing some people through the
courts – and divided them by the number of people who make mistakes.
So that’s not quite the same as what you’re saying. It’s implying that
people like our listener, Mike, was being charged partly for taking
someone else to court who refused to pay up.
MULLEN: Well I’d have to investigate that. That’s a piece
of knowledge that I wasn’t made aware of, so …
LEWIS: Well it was in the Treasury Select Committee
evidence earlier this year.
MULLEN: … but I’ll come back to you with a response on
that.
LEWIS: Mike Dailly, this letter’s being rolled out across
Scotland – a lot of students are issuing it, a lot of people at CAB’s.
What’s the response from the banks? Do they pay up or do they defend
it as Ian Mullen has here?
DAILLY: In most cases the banks are paying up, in our
experience. Some people are getting all of their money back. We get
e-mails from people saying, ‘We used your letter and we got £900
back’. Some people are only getting a percentage of the charges, but
ultimately we’re finding it’s very successful. And what we’re finding is
that the banks are very reluctant to see this issue going before senior
courts.
LEWIS: Right Ian Mullen, if you’re right and if the
banks are so confident of their ground, why don’t they just send these
letters back and say pay up, take us to court?
MULLEN: Well we’re dealing mostly with students here in
this particular discussion and of course banks are very keen to see that
the student body, if you will, is serviced optimally.
LEWIS: So they’re doing it because they’re students and
because they’re in Scotland?
MULLEN: Well you know they get free overdrafts and …
No students today, particularly on the basis that the government has
withdrawn the student grants, we know that they are in financial
difficulty.
LEWIS: Mike Dailly, can I just ask … You’re doing this
in Scotland. Is it a Scots law issue, or does it apply to the whole of the
UK?
DAILLY: It applies across the UK. The law’s quite the
same on both sides of the border. I would say, Ian, that most people
that are using our letter are not students and many of them live in
England and Wales and they’re getting their money back from the
banks.
LEWIS: Okay, Mike. Just very briefly, Ian – you’ve got
all this criticism not just from individual lawyers, from the Office of
Fair Trading, from the Treasury Select Committee. Can you hold the
line on charges?
MULLEN: I sincerely hope we can because one of the
alternatives, as happens on the continent, is that the cheque is simply
bounced.
LEWIS: Okay. Thanks very much to Ian Mullen, who’s
Chief Executive of the British Bankers’ Association, and Mike Dailly, a
principal solicitor at Govan Law Centre. And you can have your say on
bank charges on our website, which is bbc.co.uk/moneybox, and there
are links to that letter to write to the bank if you have an objection also
at the same address.
**REST OF TRANSCRIPT OMITTED AS IRRELEVANT**
------------------------------- merged -------------------------------
:beagle:
***********************************************
BIT OF A LONG ONE - THE MOST USEFUL BIT IS TOWARDS THE BOTTOM WHERE THE DIFFICULTY OF SWITCHING (FOR SMALL BUSINESSES IN THIS CASE) IS DISCUSSED.
*stax*
***********************************************
Copyright 1991 Times Newspapers Limited
Sunday Times
June 2, 1991, Sunday
SECTION: Features
LENGTH: 3197 words
HEADLINE: On the rack
BODY:
Pamela Sharp picked up The Sunday Times last weekend and discovered she was not alone in the torture chamber. Already ''kicked in the teeth'' by her high street bank, she read that small businesses like hers were on the rack all over the country as panicking bankers squeezed out their lifeblood.
Sharp (right), who runs a security firm in the West Midlands, is one of a huge army of struggling entrepreneurs, born of the Thatcher era, who have found their friendly bank managers transformed overnight into figures of loathing because of a crisis of competence in the banking trade.
Lulled by the listening bank, the friendly griffin, the black horse and the other feel-good symbols of 1980s banking, these customers have suddenly woken up to a wave of sharp practice and exorbitant charges and to interest rates that go up when the government says they are comin down.
Letters flooding in to The Sunday Times have revealed a desperate state of affairs. On the one side are the banks, ruthlessly determined to shore up their balance sheets during a recession. On the other are the customers, who feel they are being plundered with impunity and thrown on to the scrapheap little fish sacrificed to pay for the banks' own incompetence in dealing with the big fish of corporae Britain and the Third World.
In between, in many cases, is a generation of bewildered and embarrassed bank managers forced by head office to take up the knife against old and trusted customers. A Barclays manager, who requested anonymity, wrote in despair at being caught between ''a rock and a hard place''.
''In the past, when we have had good businesses on our books which have encountered temporary trading difficulties, we simply reduced or suspended interest charges for a time. When Barclays was actually run by bank managers this was an ideal solution for bank and customer alike. Now that our head office is awash with accountants, however, such a practice is officially frowned upon.
''I and many other Barclays managers would agree that the business economy is in a terrible condition,'' he said. ''We would even agree that the banks are contributing to that condition when in fact they should be alleviating it.''
At a time when the public mood seems to be turning against the culture that has governed Britain for the past decade, the victims make it plain that the small-business bedrock of Toryism is at risk.
But the government proclaims itself helpless. Eric Forth, the Department of Employment junior minister responsible for small businesses, sai yesterday: ''I am still waiting for someone to tell me what I can or should do. I am also waiting for specific and positive evidence for what is going wrong here.''
WHAT do the small businesses accuse the banks of doing? Very simply, robbing them when they are at their most vulnerable to make up for losses that are the banks' own fault. Some bankers and financial commentators dismiss such complaints as naive, arguing that it is time for 1980s entrepreneurs to enter the real, harsh world.
But the entrepreneurs invoke natural justice. Most people nowadays know how painful it is when mortgage costs soar as a result of government interest rate policy. What the banks are doing is something else: hiking interest rates, hammering customers with punitive charges and according to their victims engaging in behaviour little short of trickery in order to get collateral for previously unsecured loans.
The principal weapon is the ''margin'', the difference between the bank's base rate and the interest it actually charges customers. Today, mortgage customers pay a very small margin because the mortgage market is so competitive, as do big corporations with the clout to negotiate. Little companies, however, feel themselves at the banks' mercy.
Pamela Sharp has seen a Midland Bank loan, agreed three years ago at one point over the base rate, go up steeply in the past few months to six points over base. She has now been forced to re-mortgage her home to pay off the loan.
She told The Sunday Times: ''I feel very bitter about it. We are the silent sufferers, the small businesses, while the banks appear to be profiteering and abandoning their business customers.''
John Taylor, owner and managing director of the Cricket St Thomas country house and wildlife park near Chard in Somerset the house used for the BBC series To the Manor Born was told by Lloyds Bank last week that the margin on his Pounds 2.5m overdraft facility had been raised from 1.5% to 3% over base rate, costing him nearly Pounds 40,000 extra a year. Last year, on the bank's advice, he had turned down the offer of a Pounds 100,000 low-interest loan from his brewers.
''They are absolute *******s these people,'' he said. ''I just can't understand it. Our security is a lot better than most. We have had no downturn in visitors. And what galls me most of all is that they can do this without discussing it.''
He warned: ''The government hasn't a hope in hell if it allows this sort of thing to go on. The chancellor has got to start banging the table.''
Peter Beamand, whose family has run a printing firm in east London for almost a century, was appalled to learn last month that the Midland Bank had increased its charge on an overdraft from 3% to 7% above the base rate.
Beamand said: ''The new rate just came out of the blue. The bank knows I can afford to pay, so it's an easy way of making money. I am being ripped off, and I cannot fight back.''
A Bristol businessman, who chooses not to be named, is looking to sell his Pounds 1m engineering firm after Lloyds increased his charge on an Pounds 80,000 overdraft last month by 1% to 4% above the base rate. He said: ''This is the final straw. The banks are providing no relief and I can no longer put up with the strain. It seems they are deliberately making life difficult so that they can pull the rug and get their hands on the company's assets.''
John Sugden, who runs Three Counties Toys in Haslemere, Surrey, says his retiring NatWest manager promised him a reduction from 3% to 2.5% in the margin on his Pounds 70,000 loan facility, which is backed by Pounds 700,000 of assets. Instead, the new manager increased the margin to 3.5%. ''How can there be any justification for this?'' Sugden asks.
Confronted with these and many other complaints, the banks insist they have no across-the-board policy of increasing their margins on business loans and overdrafts. Where margins have been raised, they say, this is due to increased risk, because of the circumstances of the company concerned.
''I think you will find that most loans do follow the base rate,'' said Sir Nicholas Goodison, chairman of the TSB and president of the British Bankers' Association. Sir John Quinton, chairman of Barclays, said: ''All Barclays' rates are linked to a certain number of points above base rate and when base rate changes we press a button on the computer and they're all automatically brought down.''
Gerry Solomon, senior general manager of UK retail banking at Lloyds Bank, said: ''There is much loose comment about banks in general charging inflated margins over bank base rates.'' A Midland Bank spokesman insisted: ''There is no blanket policy of increasing margins.''
But the denials are shallow. Evidence in the possession of The Sunday Times shows clearly that the big banks have a deliberate policy of increasing margins, for all companies.
A Midland Bank internal memo to corporate directors from AI Mullen, diretor of UK corporate banking, last September spelled out the objectives. Mullen told his officers: ''Additional income should be sought by increased interest margins, fees, and by cross-selling to our existing customers.'' Mullen added: ''We must use our professional knowledge to decide whether the customer has a sufficient chance of surviving. If the decision is positive, we must seek additional security to protect the bank and, if the decision is negative, then we must seek to terminate our relationship with the customer one way or another.''
KC Dilley, the senior corporate manager at Barclays Business Centre in Barking, Essex, wrote to a customer last month advising ''that the bank has been revising its policy towards interest margins on a nationwide basis''.
He continued: ''For some time the bank has been looking to increase its margins as other banks have already done, but in view of recent, relatively high base rates and the fact that conditions recently have been particularly difficult in some sectors, it has waited until signs that rates were decreasing before making this move.'' Barclays head office maintained that this did not reflect bank policy.
Lloyds Bank said it cut lending rates to small businesses by half a point last week. However, its average margin has increased by 0.7% since the start of last year, and The Sunday Times has received a long string of complaints from customers about a disguised increase in margins, achieved by moving borrowers on to the bank's monthly managed-rate system.
INCREASED margins are only the tip of the iceberg as far as the war between the banks and their small business customers is concerned.
Usually without notification, banks are also imposing new charges, or sharp increases in charges, on their business customers. Banks are calling in loans or overdrafts at impossibly short notice. And bank managers add to the financial difficulties of troubled companies by levying hefty fees for ''monitoring'' accounts.
Ken Wilson, a Maidenhead businessman, exceeded his overdraft limit and received 10 letters from NatWest six of them in one day advising him that direct debits on his account could not be paid. Te bank charged him Pounds 35 for each letter and his wife has had to take a part-time job to find the Pounds 350.
Ian Popham, a partner in Vanpower, a courier company in Watford, Hertfordshire, said the Midland increased the charge on his Pounds 25,000 overdraft by 1% to 4% over the base rate and imposed a monthly management fee of Pounds 100.
He said: ''I regard this fee as additional interest, which means I am now effectively paying 23.5% or 12% above base. We are a healthy company and the bank is taking advantage of our position. We are being ripped off. We'd be better off going to a backstreet loan shark.''
Lynn Lewis, managing director of a Middlesex company that makes nautical gifts, now has to pay NatWest handling charges of 58p per cheque instead of 45p, an increase of 29%.
''It's iniquitous. The bank has ignored our request for a published tariff and found a sneaky way of charging me more when I thought I had done a deal with them,'' said Lewis.
Tony Holtam, 31, who runs a fruit and vegetable shop in Cowbridge, near Cardiff, says the future of his business is threatened because of high charges imposed by the Midland. He is now paying more than Pounds 25,000 a year in interest, which he says is crippling his business.
''I feel I am playing a game of Russian roulette with the bank,'' Holtam said. ''I have risked my life, my wife and my children to build up this business. I will never do it again because there is no incentive.''
A manufacturer of industrial units based in the West Midlands, with a turnover of Pounds 4m, complained to the chairman of Barclays after it imposed a Pounds 450 fee for ''management time'' to review one of the company's six business accounts. ''The bank looks at the accounts once or twice a year. If they make a charge on each account we could be paying more than Pounds 5,000 for work that is to the bank's benefit, not to ours,'' the company's financial director said.
''It really is immoral, because the bank is sitting on our money, they think they can just dip into it and take whatever they want.''
A Hampshire soft furnishing company has seen bank service charges increase by 75% over the past two quarters. Its managing director said: ''I feel helpless. We are dealing with Big Brother here. We have not received an explanation for these charges.''
Patrick Monvid, managing director of Clockbrokers, a clock importing firm near Northampton, checked with his bank after reading The Sunday Times last weekend. ''We had no idea what we were paying. NatWest had never bothered to inform us. I found to my astonishment that we were being charged 33.25%,'' he said.
Monvid added: ''We are a sound company. It's a normal business account without an agreed ceiling for an overdraft facility. The bank manager had always made it clear to me that occasional overdrawing was acceptable. He never pointed out that it was costing the earth.''
Another company had its overdraft rate fixed at 3% above base rate two years ago. Last Monday, out of curiosity, the managing director rang the bank to check that this still applied. He was told that the margin had been increased to 5% above base six months ago, without notification.
Sir Nicholas Goodison commented: ''There is no excuse for not having a close working relationship where things are explained. Customers must be open with their banks, but banks must be open with their customers.''
Most disturbing of all, there are cases where the banks have requested additional security as part of a negotiated increase in a firm's overdraft limits. They have then kept the additional security, against the existing overdraft, but refused an increase in the limit.
Elaine Kershberg and her husband run an electrical retail shop in central London, where falling takings, increased rent and the uniform business rate led them to ask the Finchley branch of the Bank of Ireland for help. Their existing Pounds 12,000 overdraft was unsecured, but they agreed to allow the bank a ''second charge'' on their home as security to increase this facility to Pounds 20,000. The shock, they say, came after they had signed the agreement: the bank turned down the request for an increase, but kept the second charge as security on their old, smaller overdraft.
''I think we were entrapped,'' said Elaine Kershberg. ''I feel that the Bank of Ireland should not be allowed to get away with this behaviour.''
Palace Books Ltd of Caernarvon, Gwynedd, had a similar experience. ''An increased overdraft was agreed with our local Midland corporate manager and then withdrawn six weeks later. Two freehold properties given as security for this specific loan were not released by the bank and nor were the fees of almost Pounds 800 charged for the increased facility refunded,'' said David Jarvis, the company secretary.
''Cheques issued in good faith before the withdrawal of the facility were dishonoured and we were charged Pounds 60 a time for their return.''
Such accounts add ammunition to the charges of Walter Herriot, a former Barclays manager now running the St John's Innovation Centre in Cambridge, who argues that most banks are no longer supportive of business. He said: ''The problem is not just the cost of money, it is the attitude of the banks towards risk. Over the past five years the banks have lost their understanding of risk. What they do now is pawnbroking. They are only really interested in security.''
EQUALLY galling for businessmen caught in this trap are the responses they receive from many MPs, ministers and officials whom they ask for help and advice.
When a businessman wrote to Robin Leigh-Pemberton, the governor of the Bank of England, the reply from David Carse, manager in the banking supervision division, said: ''The interest rates charged by the banks are a matter for their commercial judgment and the Bank of England is not in a position to intervene on behalf of an aggrieved customer. Nor am I aware of any other governmental body to whom you could appeal on this matter.''
At the Department of Employment, Eric Forth said he understood the ''real concerns'' of businesses that feel they have been unfairly treated by the banks, but he defended the banks' lending policies. ''In so far as small businesses seem to be riskier, it is not unreasonable for the banks to charge more. It is their money they are lending, not ours,'' he said.
There is a banking ombudsman who deals with complaints against the banks. But although he can take up cases on behalf of self-employed businessmen and partnerships, he is not empowered to handle complaints about the banks from limited companies.
When David Simpson, a businessman in Camberley, Surrey, wrote to Julian Critchley to complain about increasing margins, the Tory MP replied: ''Whilst I sympathise with the problems you are having, the question of bank interest rates is not really one for a member of parliament.''
Simpson then tried Norman Lamont, the chancellor. A Treasury official answered on Lamont's behalf: ''As I am sure you will appreciate, the government cannot intervene in what is a commercial matter between yourself and your bank. The rates which are charged to individual customers, or for certain products, do not always follow base rates exactly. This may reflect a range of factors, for example current competitive pressures, or the degree of credit risk which a particular loan is seen to represent.
''I can only suggest that if you are dissatisfied with the rate of interest you are paying you may wish to 'shop around' for a more favourable rate.''
No such luck. With all the banks seeking to rein back their lending, businesses seeking to move their accounts are likely to be rebuffed.
The Midland's memo of last September advised managers to be ''very wary of new business coming from other banks''. Sir John Quinton of Barclays said: ''We look three to four times as hard at any prospective customer who wants to change to Barclays from another bank. I agree it is not easy for many small businesses to transfer their accounts.''
Robin Mclean, a GP from north London who is borrowing to invest in new medical equipment for his practice, knows the truth of this. After discovering last week that he was paying 5% above the base rate for a Barclays overdraft, Mclean contacted NatWest and was offered a ''daily rate'' of 22.5%, more than double the margin charged by Barclays. ''It's clear they don't want the business. They are not giving anybody on the receiving end of these charges a chance to make a living,'' he said.
Aggrieved business customers should not be frightened of taking up their complaints at the highest level within their bank. Peter Blagg, who runs a corporate communications consultancy in Hertfordshire, was examining his NatWest statement and discovered that an overdraft charge of 1.2%, or Pounds 500, had been levied without any letter advising him of it. The bank also increased his margin above base rate by 0.5% to 6.5%.
He wrote to the chief executive of NatWest, Tom Frost, questioning the legality of the charge and objecting to the increased margin. Eventually, both were dropped.
Another company, Power Packing Export Services of Loughton, Essex, objected to a 0.5% increase in its Barclays margin, and had the increase cancelled.
''Too many people are frightened of their bank manager and do not challenge what they do,'' said Blagg. ''The proper attitude is to treat your bank as only one of your suppliers.''
LOAD-DATE: June 12, 1991
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