Bank charges are what it says in the contract

Banks in the news again today.  This time, they’ve won a supreme court ruling that the OFT has no power to interfere with certain charges (although it might nevertheless have powers to review their overall packages).  So-called consumer groups outraged: lots of people won’t get refunds unless their banks acted unfairly in making charges.

I beg to differ.  I’m as pissed off as the next taxpayer about my money going to bail out banks[1], but on this matter I’m with them.  If a bank’s terms and conditions say that going beyond an overdraft limit will cost you £x, then they’re fully justified in charging £x when customers do that.  And variants on the theme.  The key points are:

  • You signed up to a deal that includes charging for some things you might do.
  • You have ample opportunity to complain and get refunded if you incur charges due to a bank error, or in cases of reasonable doubt as to whose fault it was.
  • You’re taking out money that isn’t yours.  That makes you a high-risk customer for the bank.  After all, if you were a responsible customer, you’d have arranged it, and avoided the charges.
  • Above all, banks offer different terms and conditions, and if you don’t like one bank’s charging regime, you can take your business elsewhere.

Yes, it’s possible to go into the red inadvertently.  I’ve done it myself (most recently in 2002).  I cursed at the charges, but I didn’t go whining to some collective-nanny “consumer” group with an agenda to abolish the value of money by encouraging everyone to spend what they don’t have.  Fortunately my own current account is with Nationwide, whose charges are a lot lower than those spoken of by the campaigners.  If you find £35 outrageous, stop whinging, and take advantage of Nationwide’s £20.  Or some other bank … I believe the Coop is usually competitive, for instance.

The meeja reaction is slightly satisfying: they’ve been campaigning along with the “consumer” groups and had assumed it was everyone-vs-the-banks, and that the banks would lose, so they’ve been caught on the back foot.  It’s encouraging to hear them now acknowledging a huge volume of correspondence from the hitherto-silent majority, siding with the banks and today’s ruling on this issue.

Savers and taxpayers – especially future taxpayers – are being robbed blind to bail out borrowers, above all mortgage holders.  But today we’ve at least been spared bailing out one bunch of chancers.

[1] … and I was about a year ahead of the chattering classes in saying so, on this very blog … see for example September 2007 (here, here), or more explicitly here.

Posted on November 25, 2009, in rants, uk. Bookmark the permalink. 5 Comments.

  1. Aren’t you troubled by an industry that nominally sells one service but actually books a substantial portion of their revenue only when their customers losing a bet? The banks know exactly what percentage of their customers will lose that bet. They frame the bet as if losing it was a moral failing on the part of the customer. They fell into this business model because the political establishment decided to let them set their own norms, and they were unable coordinate avoid falling into a rush to the bottom where these kinds of questionable business model reside. Discussing this at the church of contract sanctity misses the big picture and glosses over how practically none of the customers had a wit of choice when they were drawn into the gambling house.

  2. Ben makes a fair point, but I’d say that’s a case for regulating the way in which banking services are advertised and sold, not how they’re applied. Niq is right: there are some principles in social interaction that are so fundamental that to tamper with them invites catastrophic results, and one of those principles is: “A deal is a deal.”

    Introduce the idea that it’s sometimes OK to wriggle out of a deal when you change your mind, and you’ve introduced not just a new layer, but a whole new dimension of complexity – and hence, instability – in the economy.

  3. Deals aren’t simply deals though that is why contract law exists.

    The OFT exists to investigate and stop unfair terms in consumer contracts.

    The legal argument appears to be that these fees are part of the cost of a current account, and thus they can’t be investigated as unfair if they are plainly spelled out in the contract, since the basic price of a service is exempted from unfair terms legislation.

    Most of this is about systematic claims by people reclaiming bank charges for which I have little sympathy in general, but the ruling is bad for the OFT as it may substantially constrain the OFT in stopping abuse of consumer rights.

    My bank just sent me a 15 page small print booklet labeled “Change to your Terms and Conditions”, which thoroughly revises the terms and conditions for unarranged borrowing. As it happens they are dropping the charges for unarranged borrowing (I think!), and dropping the interest charged on unarranged overdrafts, probably to discourage the government regulators from pursuing them further on this issue.

    I’m guessing I’m smarter than more than 99% of the banks customers, my comprehension of written English is reasonable, I’ve written software for banks, and I don’t understand precisely what this booklet is saying. It would take me a long time to read and understand it fully. I think I’ve got the basics but only because I read more of it than I usually would to write this reply.

    Indeed one needs to know a fair bit of retail banking terminology to understand any of it. “Overdraft facility” becomes a “paid referral buffer” for example.

    These new unarranged borrowing terms have been in effect for October 1st, but the bank only wrote to me last week to tell me about the change.

    Looking at it. If your pay cheque bounced sending you over your limit, you could easily have incurred £220 in fees for going overdrawn and having your cheques bounced in the first month, and you would have been charged 30% (annual rate) interest on the overdrawn amount. The next month you might well now be unemployed, you are £220+ poorer, and if you haven’t sorted a better overdraft facility or got a new bank account you’ll be charged the same again till you do.

    The revised level is about £140 per month in fees and 20% interest on the overdrawn amount.

    However it is viewed the terms in this contract aren’t what they were when I opened this bank account. I didn’t (couldn’t reasonably) know they were in effect for a month. I think it unreasonable for me to be expected to read 15 pages of close typed banking jargon every couple of months, and I have no recourse other than to close my bank accounts and take the bank to court if they behave unreasonably. So precisely the kinds of contract terms the OFT was set up to protect consumers from, and apparently they aren’t allowed to investigate because it is part of the product price?!

    The net result of this is that the claims that the Financial Ombudsman has on hold because it expected the banks involved to capitulate enmass, will now be dealt with individually. I suspect in many cases the complainants will win some or all their fees back, since the OFT wouldn’t have got involved if it hadn’ t determined that some of the charges were unreasonable. If the Ombudsman doesn’t succeed the banks will face legal challenges from the individuals concerned. All the ruling avoids is the OFT investigating if the contracts are fair.

  4. Banks and credit companies must be the only organisations that are permitted to change thier contract terms one-sidedly *during the period of the contract*. If such crookery suits Ben, it doesn’t me and I will fight it as I can.

    The law lords decision (call them Supreme Court if you like) is a fiddle if ever I saw it. It seems to revolve on pretending that ALL charges are core. But does not include the cheating interest paid by banks, nor the benefit to banks from investing deposited money.

    If you think the charges in question were fair, then I’d never do business with you, Ben. If you think they related in any way to loss by the banks I defy you to illustrate that.

    If you think charging £30 a day for an overdaft of as little as £1 (arranged or not) has any validity, morality or honour… Or charging anything for a day late payment…

    Well, I wouldn’t know how to express my thoughts on a public forum!

    Oh, and I think the law lords were wrong! wrong! wrong!

    Joseph Harris

  5. Surely unauthorised overdrafts are a breach of contract – you’ve spent money that’s not yours, and that you’re not entitled to under the terms of an existing agreement.

    Perhaps the best solution would be the one adopted by many continental banks – if the customer overdraws without consent, the bank simply closes their account, recovers the money and tells them to go elsewhere. In consequence, they have far less of a consumer debt problem that we do in the UK too. Of course, the banks don’t make as much money this way. The flip side of this is that free banking for current account holders doesn’t exist in many European markets either.

    As someone who banks responsibly, I have to admit to being perfectly happy for feckless customers to subsidise my free banking!

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