uSwitch.com: OFT's announcement of an 'in depth study' into bank charges

Following the Office of Fair Trading’s (OFT’s) announcement of an ‘in depth study’ into bank charges today, Nick White, Director of Financial Services at independent price comparison and switching website uSwitch.com, comments:

“The OFT’s decision to conduct an in-depth study of retail banking pricing is a bit of a double edged sword. On the one hand it is good to see that the issue is at last being addressed and that preliminary steps have been made to resolve it. On the other hand, consumers will have to continue to pay excessive bank charges until the research findings are announced at the end of the year. Given the OFT first announced that current account charges would be investigated seven months ago (7 September 2006) it seems to be an extremely slow moving project.

“Whilst we fully understand the size of this investigation and the fact that it has to be executed correctly in order to provide the most beneficial long term solution for consumers, this delaying tactic will enable banks to hold onto this lucrative income stream for the best part of another year. Recent research from uSwitch.com has shown that almost 19 million people have been hit with a total of 159 million chargeable events, generating an income of £4 billion for the banks.

“Our advice to consumers that have already been hit with bank charges is to act now while the claim is still valid. At some point we fully expect the OFT to announce a deadline on this process, and, who knows, this may happen before the full research findings are announced at the end of the year. Our recent research also highlights that £2.12 billion is sat waiting to be claimed by consumers but 86% of people do not fully understand what they are entitled to if they do take action against their bank.

“As for the outcome of this investigation, recent broadcast coverage on both the BBC’s ‘Whistleblower’ and the BBC’s Money Programme both claimed that the real cost to banks is far lower than the average penalty charge which currently stands at £30.

The Whistleblower featured a Barclay’s employee saying: “...so stopping a cheque or bouncing a direct debit will cost the bank £1.50 - £2.00 handling charges. But we still bill the customer £30-£35 so that’s a bit unfair, a bit unrealistically harsh.”

The BBC’s Money Programme in December revealed that the average penalty charge (£30) is 567% higher than the actual cost incurred by banks at just £4.50.

“More now than ever before, consumers should be keeping a very close eye on the small print and the correspondence they receive from their bank. With this latest announcement from the OFT, banks will continue to claw back any lost revenue streams in anticipation of the outcome of this investigation. By voting with their feet, customers can make sure they are not being ripped off by underhanded revenue generating tactics which simply add to banks’ profits."