Current accounts – changes afoot

The court has announced that unauthorised overdraft charges are assessable for fairness and the banks have applied directly to the House of Lords to get permission to appeal to the House of Lords. At some stage there will almost certainly be another court case to decide what actual level of charges are deemed to be fair.

David Black, Principal Consultant of Banking at Defaqto said: "My expectation is that there are now two possible outcomes in terms of the level of charges that are deemed to be fair."

"There may be a flat limit imposed, and, if this is the case, I would expect it to be set slightly above the £12 default cap currently imposed on credit cards.

"The alternative is that we will see a graduated cap determined by both the amount by which the borrower has strayed into unauthorised overdraft territory and the duration for which it happens. This method would see a small temporary unauthorised overdraft attracting a lower fixed charge than a more substantial transgression."

"As always if the banks see a reduced income stream in one area they will undoubtedly seek to improve their lot elsewhere. Sadly I think we're getting a step closer to charges being introduced on full service current accounts."

If charges are introduced on full service current accounts there are several models that could be utilised:

Pay as you go (fee per transaction)
Flat fee
Flat fee covering a specified number of transactions with additional charges levied on any excess transactions
Discounts or fee waivers on charges if you have other specified products with the same bank or if you maintain a specified minimum or average credit balance
Differing facility / service offerings
Further differentiation and heavy marketing of the added value current account packages available.

Basic bank accounts which have more limited facilities (and no overdraft) are unlikely to see the introduction of any charges.