Going up - current account costs are increasing

Bank current account customers who celebrated their victory in the courts over alleged penalty charges may be re-corking the champagne as the banks hit back to protect their profits by imposing higher charges for some of their services.

Meanwhile, the banks will go back into battle with the Office of Fair Trading (OFT) this Thursday (22 May 2008), when they meet for a case conference to decide whether they want to appeal last month's court ruling that the OFT should be allowed to determine whether the current account penalty fees being charged were fair or not.

The banks had argued that the charges did not come within the OFT's remit for determining fairness, because the charges were fees paid by a customer in exchange for services provided by the bank.

Mr Justice Andrew Smith, in a judgment stretching to 119 pages, ruled that overdraft penalty charges and unpaid item charges such as fees for bounced cheques could not be viewed as a service. He said, "If a bank declines to pay upon a relevant instruction, it supplies no, or no relevant, services by way of considering, processing or otherwise dealing with it," and added, " I am unable to accept that either the paid item charges, and guaranteed paid item charges, or the overdraft excess charges, are the price or remuneration, or even a part of the price or remuneration, that the customer pays."

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His ruling opened the way for the OFT to rule on what a fair level of charges should be - much as it did with credit card penalty charges in 2006.

See:Bank charges - OFT wins legal victory

The meeting on Thursday will decide if the banks will appeal against the court ruling, or accept the ruling and submit to a fairness test by the OFT under the terms of the Unfair Terms in Consumer Contracts Regulations (UTCCR).

If the banks appeal, the case will have to go through the courts again - with a hearing unlikely before next year. If the banks decide not to appeal, a ruling by the OFT on a suitable level of charges could come as early as July.

Meanwhile, cases by bank charge protesters in the small claims court have been stayed until there is a definitive ruling. Unsurprisingly, the banks, fearing that they will lose the right to impose charges that net them around £ 3.5bn a year, are getting their retaliation in first.

Even though the Bank of England held the base rate at 5% this month, and cut it the previous month, some banks have put their credit interest down and their overdraft rates up.

An estimated seven million consumers who use "packaged" fee-paying accounts will see the monthly charge for their current accounts go up, as banks seek to hold on to their profits. Other customers will find that the interest they receive on their current accounts when they are in credit has been slashed and the cost of their overdrafts has gone up.

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Michelle Slade, personal finance analyst, at data provider Moneyfacts says, "This is really disappointing news for current account customers, particularly in the wake of the success in the High Court by the Office of Fair Trading. When the OFT announced that credit card default fees were too high, the institutions cut these charges but raised charges elsewhere to compensate for the lost revenue.

19 May 2008 © Moneyextra.com

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