We take a look at how fairly customers are treated by their bank if they miscalculate and use an unauthorised overdraft.
“Following the OFTs ‘success’ at reducing credit card default fees, they are now in the process of focusing their attention on similar penalty fees within the industry, with its next target set to be current accounts. But if the credit card market is anything to go by, this lost revenue will not be taken lying down, with providers searching for alternative methods to recoup this income," says Lisa Taylor, analyst at Moneyfacts.
“Already Lloyds TSB has announced changes to its overdraft tariff on selected accounts, removing the buffer and changing the terms of its default charges. On top of this, during 2006 we have already seen Royal Bank of Scotland, NatWest, Lloyds TSB, HSBC, Yorkshire Bank, Clydesdale Bank and Smile all increase their authorised overdraft rates by as much 2%, " says Taylor
While it can not be disputed that current account fees look excessive, the problem is made worse by the lack of transparency caused by the complex terms, conditions, waivers and by every provider charging in a slightly different way.
Take the example of a consumer who as a one off, miscalculates and slips an into unauthorised overdraft by £1 for 1 day, the table below shows how differently the banks treat their customers. At worst this mistake could cost over £30, whereas at the other end of the scale, some lenders wouldn’t levy a fee for such a minor customer error.
| Bank | Fee | Interest |
| Lloyds TSB (wef 1.11) | £30 | 29.80% |
| Halifax | £28 | 28.80% |
| NatWest | £28 | 29.69% |
| Royal Bank of Scotland | £28 | Nil |
| Abbey | £20 | Nil |
| Woolwich | Nil | 27.50% |
| Barclays | Nil | 27.50% |
| Nationwide | Nil | 24.90% |
| HSBC | Nil | 15.90% |
| Alliance & Leicester | Nil | Nil |
What’s worse is that these charges can be the same regardless of the amount
you are overdrawn by, and can be worse still, if the bank also charges a ‘paid
referral fee’ for not bouncing the cheque or direct debit that caused
the excess.
Loyal customers, can be great revenue earners for banks, with opportunity to cross sell other products and services. But when automated systems take control, and minor errors are punished so harshly, the customer/bank relationship in many cases will never be the same.
Of course customers can complain and may be lucky enough to get their charge refunded, but the damage to the relationship is already done. With the perceived hassle of switching current account providers often seen as a deterrent, dissatisfaction with service is a much bigger driver for lost business than the a poorly priced product.
“To avoid these charges, always speak with your bank as soon as you foresee a problem arising, and if possible have an ‘in case of need’ overdraft facility in place, so at least you won’t be so severely punished for those ‘emergency’ or unforeseen moments," says Taylor.
“While it is welcome that the OFT has identified the issue and intends
to resolve some of the flaws surrounding current account penalty fees it should
at the same time, be mindful of the potential consequences. The end of free
banking for example will affect many more consumers, than those currently impacted
by the unfair default charges,“ says Taylor.
