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Will the OFT Recommendations Be Enough?

It has been reported in the press this weekend that, during the next few weeks, the OFT will announce its recommendations into the level of bank charges. But will it be enough to combat the excessive fees charged? Or will it just be another slap on the wrist for the banks?

The latest investigation stems from a report into credit card penalty fees charged by eight of the major card providers, which reared its head over eight months ago. Since then we have seen little change to the levels of fees charged. In fact, nothing positive has happened within the card market and over the last year many current account fees have risen.

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It is rumoured that the OFT will request for the banks and card providers to reduce or cap the fees they charge. But at the moment there seem to be many unanswered questions.

Lisa Taylor analyst from moneyfacts.co.uk comments:

How will the banks and card providers react?

“Is free in-credit banking an endangered species? The free banking that UK consumers receive and almost take for granted is not widely available internationally, with the UK remaining one of the few countries to offer this service. It is only when consumers venture outside the agreed boundaries of their accounts that they will experience the full impact of these fees and it is certainly an area where lenders have the potential to increase revenue.

“It is reported that a reduction in fees could see banks lose up to £1.5bn in revenue, which I suspect is not something they will give up without a fight. The financial reports of the ‘Big Five’ published this month, reinforce the message that consumer debt is a problem, with bad debt provisions rising by up to 44% from 2004 to a combined total of over £10bn. Therefore lenders may argue that fees are a deterrent to unauthorised borrowing and an aid to contain bad debt.

“But surely there are better ways to manage this risk. Employing and training more staff to deal with customers in financial difficulty, with the aim of managing the problem before it becomes an uncontrollable beast. Imposing more debt by the way of fees will not solve the problems faced by these consumers.

What is an acceptable amount to charge?

“Consumers will pay up to £25 for a late payment to their credit card, and £35 or more for an unpaid item presented to their current account. With other charges for exceeding your overdraft and interest incurred it can be a very costly exercise for those who can ill afford it, and that is without taking into account the increases in fees we have seen over the last year.

“With automated systems making many of the lending decisions, the charges appear to be ‘punitive’, and unrelated to the costs and amount of work involved. But would a lower fee lessen any deterrent that consumers may have to work within their agreed terms?

“The banks, card providers and some consumers will be waiting with bated breath to hear the full recommendations into the highly topical world of bank charges, I hope for the sake of many consumers who find themselves in difficult financial situations that the report will propose a workable solution that the financial institutions can adhere to.”

Top 10 Late Payment Fees

Example of rising fees within the Big Five banks