Bank charges are not fair.

Following the excellent and thought provoking blog from my colleague Matt Edwards, entitled “In defence of bank charges.”,  I though I would post a blog response with a different view.

My politics is based massively around my ideas fairness, and it is on this crucial test that I think the bank charges fall down, and fall down in a big way.

Firstly the problem as I see it is the value of the charges is so often out of all proportion to the nature of the “offence”. Put simply the punishment does not fit the crime.

Where people go over their overdraft limit by a matter of pence they are charged often disproportionate fee’s. 10, 20 even sometimes as much a 35 pounds. And whilst the practice is mostly ceased now you are still sometimes also charged for the letter that is sent out. I remember once, when I was younger and frankly poorer being charged in total £50 for having been 67 pence over drawn.

This can lead to people then struggling to make ands meet the following month and often going over drawn again by less than the amount of the charges levied on them the previous week.

But I think the biggest failure of the bank charges regime is the was it disproportionately effects the poorest and most vulnerable in our society. The reality is those who have larger and more comfortable family incomes, those who don’t have most months to go searching behind the back of the sofa for change to buy milk and break, are unlikely to ever get these charges.

Further they tend, in the main, to have free retail banking, subsidised in part, by punitative charges levied on those much poorer. This to me as lefty concerned with fairness, is totally outrageous.

I think a much better system would be one where everyone paid the fair share of their running costs of their retail bank accounts, and that charges should be levied much more closely in proportion to the actual losses suffered by the bank. We all no that an automatically generated letter over a direct debit refusal costs a bank pence not tens of pounds.

And whilst banks need to challenge poor financial behaviour in customers who do not use the services correctly they should not be based on making profits.

Many of the ways in which banking system operate contribute to this happening anyhow, what is the rational logic for some card based transaction to take 3 working days to clear? If the electronic transactions were near instantaneous then it wouldn’t be possible for most bank customers to go over their overdraft limit in error. This happens for customer with Electron or Solo cards and the banks could, if they wanted, make this happen for all.

The status quo is unfair, unreasonable and regressive in nature, and people are right to question why the banking sector in retail banking in the UK should continue to operate in these ways after the taxpayer has bailed them out.


27. August 2010 by Ralph Ferrett
Categories: Activism | Tags: , , , , | 6 comments

Comments (6)

  1. That’s an interesting post. Actually I benefit from a charge-free current account because I receive above a certain amount onto the account each month.

    But I’ve never really thought about the fact that it’s at the expense of other customers who do pay charges.

    Having said that, the bank I use is the nearest thing we have here to a nationalised bank and they offer all sorts of free accounts to students and people who are on official apprenticeship schemes.

    I changed to this bank after getting shafted one too many times by the corporate behemoth of a bank I used to use.

    • I don’t in anyway think people taking advantage of free banking are at fault. I do, and I am sure that any seinsible person would. I just think it is a structural fault of the way the UK retail banks are set up that they operate this way.

      Have often thought about changing bank I am with the now pretty much state owned RBS, who have been really good to me over the years (was with Barclays before). But I quite like the idea of banking with the co-op. Just can’t be bothered with the paperwork and hassle! I’ll probably stay with my bank for years on the basis of the path of least resistance.

  2. I’ve had this discussion before, and although I am generally not a huge fan of the banks (completely agree re ‘clearance times’ etc) I just about side with them on ‘unauthorised over-draughts.’

    The ability to take more money out of my account than I have available has, in the past, been a very valuable asset and on balance I think a £20 fine is fair for taking money without authorisation. If given the choice between not being able to go over my over-draught, or being fined when I do, I would gladly accept the fine as and when circumstances require.

    Where I disagree with the practice is where charges mount up on top of each other; where an initial £20 fine becomes a £40 fine and more when the money you are expecting to cover the over-draught falls short because of the fine.

    The other issue I’d take up, is that you are effectively being punished twice, as, as well as the fine, your credit rating is also effected.

    In my eyes the bank I am with at the moment (HSBC) have it about right. You get one ‘free’ unauthorised withdrawal every 6 months – any more than that and you get levied with a fine.

    Of course the actual solution is to advise your bank every time you expect you may go overdrawn and get an ‘arranged’ over-draught. You’ll be surprised how accommodating they can be.

    • Hi Alex,

      Well different strokes and all that. The principle problem for me is the way the cross subsidy works… namely poor people get fined to pay for free banking for rich people.

      And lets be clear most of these charges a profiteering pure and simple. They charge this money because the banks operate a cartel on these things.

      “Of course the actual solution is to advise your bank every time you expect you may go overdrawn and get an ‘arranged’ over-draught. You’ll be surprised how accommodating they can be”

      Amen to that, almost certainly the best solution.

  3. Sorry about my HTML

  4. Nice post, the charges are unfair. PPI claims are the best way to get your money back.

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