The End of Free Banking?

Today marks the start of a high court battle between our high street banks and the Office of Fair Trading (OFT), along with a long list of customers waiting with baited breath to find out if banks will be charged for implementing unfair and overpriced bank charges.

Banks retain their stance that their charges are completely legal for customers who go overdrawn on their account without authorisation, for whatever reason. And whilst we appreciate that banks have the right to charge for unauthorised borrowing, it is the amount they charge you that has got people so angry.

At present there is no real regulation about how their fees are calculated. Many banks charge around £25-30 for each time you go overdrawn, which is supposed to cover administration fees, when in actual fact it probably costs little more than £3-4 in admin costs. If the Office of Fair Trading win the court case, this may lead to a figure being decided for them, that banks will need to adhere to.

During 2007 thousands of irate customers challenged these alleged unfair payments and many won refunds in out of court settlements. If the banks lose the court case, they may be required to pay back everyone who was deemed to have been overcharged.

It is estimated that charges for unauthorised borrowing make the banks and building societies approximately £10 million per day, so whichever way you look at it, ultimately it is still the customers who will end up paying once more, albeit in a different guise, as the banks and building societies will want to recoup any lost income or monies, by charging for their other services.

It is likely that if banks have to pay out compensation to account holders for back-dated charges, they stand to lose billions. They will then look at what they can start charging more for or cutting back on. 2 of the most likely changes would be cutting or stopping interest on current accounts and starting to charge every account holder a monthly bank account 'maintenance' fee.

The OFT is combating 7 top banks and 1 building society and feels confident of a victory, whilst the British Bankers' Association who are defending themselves have always believed that their policies are legal. If the OFT wins, banks will have to find other ways to charge us. if the banks win, they may then have the opportunity to charge whatever they want.

It's expected to be a long battle and we may not have any set outcome by the end of 2008.