ILLEGAL PROFITEERING IN BANKING

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The Banking Code of Standards Board, which operates a voluntary code of practice, received 3,500 complaints from customers in 2005, arise of 50% on the 2004 figures. More people complained about unfair penalty charges and interest rates than anything else. The BCSB added that it had also received a number of complaints about the difficulty of opening a basic bank account. (Source: Daily Telegraph, May/06)

Banks face multimillion-pound fines after undercover shoppers working for the Financial Services Authority found extensive mis-selling of controversial and expensive loan insurance. Payment Protection Insurance (PPI) is a huge money-spinnner for banks. A recent report from Credit Suisse First Boston estimated that 10% of banks' gross profits may come from PPI alone, while a Guardian exposé in 2004 revealed profit margins of about 70% on PPI sales at Barclays.

The FSA sent undercover researchers to buy unsecured loans and mortgages from 45 unnamed financial institutions. It said half of the 30 firms selling PPI with unsecured credit failed to ensure that policies were not sold to people who would be unable to claim on them. Where advice was given, it was often poor and policies were rarely explained properly.

Three financial services bodies said millions of customers benefited from PPI, with more than 15 million policies in force, paying out nearly 500,000 claims in 2004. Ian Mullen, chief executive of the British Bankers' Association, said, "Treating customers fairly is something upon which banks place great importance. Naturally, where these checks are not working, they need to be addressed." (Source: The Guardian)

Customers at Britain's high street banks are paying the most exorbitant charges in Europe. Those who accidentally go overdrawn face "punitive" charges often 10 times greater than those on the Continent, an investigation has revealed. Even an authorised overdraft often costs twice as much as elsewhere in Europe. A customer with a Lloyds TSB Classic account from the TSB range, who went overdrawn without permission by just £15 for 10 days, would face charges of more than £50. A customer at Deutsche Bank in Germany, Crédit Suisse in Switzerland or IMI-San Paolo in Italy would be charged less than 50p.

Banks such as Lloyds TSB and National Westminster not only charge higher interest rates for going into the red without permission, but also levy extra charges of up to £5 a day. Even customers who always stay in credit are often forced to pay for services, such as a banker's draft and stopping a cheque, which are frequently free in other countries. "It's outrageous that any bank can charge £5 a day for an overdraft," said Eddie Wetherill, of the Independent Banking Advisory Service."

He added, "These charges are the worst in Europe and they should be outlawed because they drive people deeper into debt. The high street banks make billions in profits, but seem to be inventing new fees all the time. For most, free banking is fast becoming a myth."

A current account customer at National Westminster pays an effective annual interest of 33.8% for an unauthorised overdraft plus a £3.50 daily charge. IMI-San Paolo, Italy's biggest bank, charges only 12.5% annual interest plus a fixed fee of 0.75% of the maximum amount borrowed. A customer with an authorised overdraft at National Westminster pays annual interest of 17.8%, far higher than his Italian counterpart at IMI-San Paolo, who pays 7.5%.

UK banks charged their customers £3bn for unauthorised overdrafts during 2003. Which magazine accused High Street banks of levying "exorbitant" rates of interest, as high as 33% APR, on unauthorised overdrafts. However, banks say that there are generous free authorised overdraft facilities in place. One in four people told the magazine they had used an unauthorised overdraft in the past year.

The magazine said the high proportion of people using unauthorised overdrafts suggested that consumers were being penalised for genuine mistakes rather than poor handling of their money. "Unauthorised overdrafts are a gold mine for banks, the charges they levy are way out of proportion," said Martin Coles, editor of Which.

"It is especially unfair on customers who only occasionally run up a small unauthorised overdraft for a short time. We're calling on banks to stop punishing these customers by giving them a few days grace to pay back an unauthorised overdraft before charges are levied."

The magazine added that high interest rates and additional charges mean that unauthorised overdrafts are a "real money spinner" for banks. Typical fees highlighted by the magazine include a £30 fee for bounced cheques and standing orders. Some banks charge unauthorised overdraft rates for the full amount overdrawn, even if part of the balance is within an agreed overdraft limit.

The magazine singled out NatWest, criticising the bank for charging customers a "contrived" unauthorised overdraft fee of 33.78% APR. "Put simply, there is no need for customers to get into this situation. Arranging an overdraft is simple, straightforward and free," Ronan Kelleher, NatWest spokesman said. "Any charges we do levy reflect the extra cost of administering an account which is in overdraft."

Overdraft charges do not, as NatWest claim, reflect the cost of administering the account. Letters, for instance, are automatically generated as are charges. Per account this can only be a few pence at most, and postage is first class: a one pound charge would be appropriate. It is only when accounts get way out of line that a member of the bank staff has to be involved.

Further, the banks mark against your credit rating for any minor infringement and keep a record of "how many days" were involved. If it is overnight they still treat it as negative and there is no period of grace. Finally, they take four days to clear a cheque. In New Zealand, since the 1960s, clearance of cheques has been overnight. If one country more than forty years ago can sort out this problem, there is no excuse for British banks to behave as they do now.

There ought to be usury laws forbidding banks to charge fees for overdraft excesses under twenty pounds, that gives three days of grace before excess charges are levied, and that require overnight clearance of cheques. The banks can not be relied on to be self-regulating in this matter as they have no interest in improving their conduct. Legislation is necessary. Mark