Will the ruling on bank charges backfire?
YESTERDAY the High Court ruled that the Office of Fair Trading (OFT) will be able to determine whether bank overdraft fees are fair.
The news has been hailed as a victory for consumers but is it, in fact, a Pyrrhic victory?
That is, has the OFT won the right to examine existing bank overdraft charges but, in doing so, lost the ability to prevent consumer detriment in the longer term?
A Pyrrhic victory?
The last time the OFT intervened over bank charges, many argue, lenders responded by simply spreading the expense to other areas not covered by the OFT agreement.
For example, credit card companies increased their cash withdrawal charges from 2% to 3%, annual fees were introduced and interest rates slowly, silently crept up.
On this occasion, the stakes are even higher: in 2005/6, according to the Department for Work and Pensions, 90% of households had a current account which they used for their main salary, paying out bills and for day to day living expenses.
Clearly, any additional fees imposed upon this market has the ability to bring about detriment to consumers on a large scale.
How could banks respond?
On this occasion, the bank backlash threatens to impose mandatory monthly fees for basic current accounts across the board in an attempt to recoup revenue losses.
The end of free banking could harm consumers significantly throughout the market and particularly affect the most vulnerable who would risk missing out on the benefits all consumers now enjoy and trading them, instead, for a decreased service.
However, the OFT research into unauthorised overdraft charges and returned item fees, which will determine the future direction of any changes to the market, will consider these fees, "in a broader context, including the range of credit and debit interest rates and other charges levied for the bundle of services provided."
In addition, the OFT will consider whether the widespread provision of 'free in credit' current accounts - that is, those accounts with mandatory overdraft fees for all users - delivers sufficiently high levels of transparency in the market.
The big assumption
However, while the courts continue their determination process, all compensation claims against excessive bank overdraft charges will remain on hold.
The final outcome is far from determined and there is no guarantee that the OFT will take any action at all following their investigation.
Existing bank charges must be scrutinised under the Unfair Terms in Consumer Contracts Regulations 1999 to determine their legitimacy.
There is a possibility, then, although admittedly a small one, that the OFT could find that existing charges are fair, which would result in consumer compensation claims being dropped entirely.
But the final ruling on bank charges is still a long way off, pending the expected appeals.
While realists agree the most likely outcome will be a cap on overdraft charges going forward, some commentators believe that at best, consumers will not receive the windfall they may have been expecting and, at worst, this saga will put the final nail in the coffin of free or low cost personal banking.