OFT court case may take ‘years’, says Defaqto

The Office of Fair Trading’s test case over overdraft charges may drag on for years with the “inevitable” result of the end of free banking, leading financial research company Defaqto believes.

Defaqto’s Head of Banking David Black points to the length of OFT action against banks on overseas credit card transactions as a guide to how long the current case will take. The OFT first took action in June 2003 in that case and a final result is expected later this year after more than four years.

And he warns that whatever happens the likelihood is that free banking will end with banks offering deals based on how much a customer uses their account and what facilities they take.

“Banks are unlikely to reduce charges on existing accounts while the review is in place because it might be construed as their acceptance that charges are too high.

“Longer term I still regard it as inevitable that the days of free in-credit banking for personal customers are numbered. Cheques are certainly in the firing line for charges to be levied.

“Whilst it is in no one’s interests for the unauthorised overdraft charges test case to drag on for ages it is very unlikely to achieve a quick resolution. The simple fact is that the amounts involved for the banks are enormous and they’re clearly going to argue their corner. Regardless of who wins the High Court case appeals are possible and, frankly, likely.”

Defaqto expects to see more accounts charging monthly fees in return for limiting charges on unauthorised overdrafts. Alliance & Leicester offers an account charging £5 a month which limits charges for unauthorised overdrafts to £5 a day while NatWest is expected to launch an account charging £10 a month which limits unauthorised borrowing fees to £17 each.

However these accounts are unlikely to be openly marketed but instead offered to customers as a result of account reviews or by invitation only.

Defaqto believes basic bank accounts – which do not offer overdrafts – will remain free.

Current account customers who take out other products from banks may be offered discounts or free banking.

However banks will prefer to focus on so-called premium or added value accounts which already charge monthly fees.