Editor's blog - Overdraft charges: Banks must act now

UK banks must act fast to end uncertainties over unauthorised overdraft charges after yesterday's ruling by the High Court and clear up the whole mess.

Tales of a great victory for consumers against the banks are perhaps a little exaggerated – like the death of Mark Twain - with Mr Justice Andrew Smith's conclusions extending to 450 paragraphs over 119 pages.

Points of clarification and appeals from both the Office of Fair Trading (OFT) and the banks may arise and the timetable for next steps will be decided by the court at a hearing on May 22nd.

Also the decision was not that banks must now return unfair fees – with costs possibly running to £10 billion – but merely whether the OFT has the power to decide whether the charges are excessive.

On this point it seems clear. As much as £38 is far too high a fee for going over the limit on your overdraft by a few pence. Banks are making profit and not just covering their administrative costs, while also giving you a slap on the wrists and telling you not to make not to do it again.

Banks need to simply draw a line under the matter, let the OFT set what fair charges should be and pay back what people have been charged.

Also banks need not to rely on long complex appeals – through county courts and the Financial Ombudsman Service (FOS) – but on the simple system whereby customers can apply directly to the banks and see cash returned.

But if the banks are to lose income from fees – estimated at £3.5 billion a year or almost £400,000 an hour – then the prospect of charges for all current accounts becomes much more likely.

When the OFT set how high credit card charges should be, interest rates on credit cards suddenly rose to make up for the loss of revenue.

The same is bound to happen for current accounts.

Premium accounts – with insurance products you will never use attached along with the right to higher rate savings and investment products – may become more commonplace and even the only choice for those not with the very basic accounts, which banks will no doubt be forced to keep for low income earners.

High street banking is now heading to a revolution – easy credit is much harder to come by because of the credit crunch, easy banking could also soon go the same way.

This change may well be inevitable, but there is still a long way to go. In the meantime banks might want to think about to returning fees to customers if only to regain a little bit of trust.

Daniel Barnes