Overhaul for overdraft charges

Over one million customers are awaiting the outcome of the Supreme Court Case between The Office of Fair Trading (OFT) and the UK's biggest banks over alleged unfair overdraft charges. Around 50 per cent of the UK population use their overdraft facility on a regular basis so the impact on this case could be huge for the UK retail banking sector.

Wednesday's decision could mean a major shake up for the banks, threatening the traditional notion of free banking, but consumers should be aware that any repayment of unfair charges could take a while and compensation will be awarded on a case by case basis. Over 20 per cent of moneysupermarket.com users currently have a repayment request pending; over half of these users think that recouping their money might be a long and drawn out process, and the other half are hoping the issue will finally come to an end.

Kevin Mountford, head of banking at moneysupermarket.com, said: "A victory for the OFT would be a major triumph for consumers in one sense, however as with all major regulatory change, it's important to consider the impact for consumers. If banks are forced reduce penalty charges they are likely to introduce a regular charge on current accounts, thus mirroring the system used most consistently across the world and signalling the end of free banking in the UK.

"Banks will always find a way to recoup the income they stand to lose if the billions they charge from a violation of overdraft limits, sending out warning letters and returning bounced cheques is deemed unfair."

In response to the Court Case, banks and building societies have attempted to simplify their charging structures over the past year and many have adjusted their unauthorised overdraft fees. However these changes ultimately do little to address the issue of unfair charging and from 2008 to 2009, only two of the top eight banks significantly altered their charging structure.

If the Supreme Court rules in favour of the OFT, then banks could be forced to recoup billions of pounds in revenue by starting to charge their customers for services that have traditionally been free such as money transfers, ATM withdrawals and cheque payments.

Kevin Mountford said: "All consumers could be hit financially if the banks are forced to recoup their lost revenue in other ways, regardless of how they currently use their bank account. We can expect to see a two tier banking system developing whereby banks offer superior products and services to more profitable customers and offer a more basic service to others.

"Regardless of the outcome on Wednesday, we are likely to see banks moving away from more traditional charging structures. If we are to pay for banking, then one would hope the banks would be motivated to offer more competitive packages, reward loyalty and ultimately build better relationships with their customers."