Bank Charges Opt Out procedure - how should it work?

Eco_Miser

So who is paying for me, and ILW, and everyone else who is getting free banking?

Eco_Miser

PlasticMan wrote: »

So the only reason our banking is "free" is that it's being subsidised and paid for by people who have lost their jobs, or become sick, or can't pay their bills for whatever reason?

No, it's also paid for by people in well paid jobs who prefer to get things NOW! with an overdraft, and pay later, with interest, rather than save up for their pleasures.

Alpine_Star

Eco_Miser wrote: »

So who is paying for me, and ILW, and everyone else who is getting free banking?

The cost is mainly born by yourselves. The largest source of revenue from personal current accounts (50%) comes from net interest income (foregone interest or net credit interest) where in-credit customers lend the bank money for nothing or a pittance in return. Revenue from insufficient funds charges account for only 30%. So it is a myth that bank charges subsidise the 'free if in credit' model.

The breakdown of PCA revenue for 2006 (source: OFT PCA Market Study) is as follows:

£4.1b - Net credit interest
£2..56b - Insufficient funds charges
£0.56b - Packaged account fees
£0.5b - Other ancilliary charges
£0.45b - Net arranged overdraft interest
£0.08b - Net unarranged overdraft interest

The conclusion of the study was that there is no such thing as 'free' banking - everyone pays a price. As the QC for Nationwide,Geoffrey Vos, put it during the first instance test case hearing:

''And what is the price? Well, my Lord, the price is broadly free for the credit customer, except of course we retain the difference between the interest rate that we give the credit customer and whatever commercial interest rate we are able to achieve on the money deposited, and that can be regarded as part of the price.''

PlasticMan_2

Alpine_Star wrote: »

Revenue from insufficient funds charges account for only 30%. So it is a myth that bank charges subsidise the 'free if in credit' model.

Only 30%!!! Nearly a third! The second highest income stream. And that's revenue, not just profits.

I am taking the word subsidise to mean "support financially" rather than "completely cover the costs of..." (ie the actual definition). Thanks for the figures but they appear to make the point you are arguing against. No-one is saying charges are the only way banks make money, but you've just pointed out that they are a major contribution (in the context of current accounts).

I would be very interested to know what the following works out as for a major UK retail bank.

total monthly overdraft charges/total number of current accounts (held by all customers)

Since that would be the monthly account fee required to cover the costs of abolishing the charges. Obviously there would be many other ways that the difference could be covered (less interest on current accounts, transaction charges) which would also be fairer, but would also be unpopular with freel0aders like ILW.

Alpine_Star

PlasticMan wrote: »

No-one is saying charges are the only way banks make money, but you've just pointed out that they are a major contribution (in the context of current accounts).

.

I can't really grasp what you're saying. There are plenty of people who believed the spin that if the OFT had won the test case it would be ''the end of free banking'', presumably because they thought that bank charges paid for it. But it is those who keep their accounts in credit that actually account for the lions share of the revenue from PCAs.

And I don't think it is a particularly large contribution to PCA revenue in the context of the amount of people who pay the charges:. The data pretty much suggests that the proportion of those who incur charges contribute a proportional amount of the revenue ie 26% of account holders pay the charges which makes up 30% of the revenue.

If you're interested read the 'Free If In Credit' annexe to the study http://www.oft.gov.uk/shared_oft/reports/financial_products/oft1005c.pdf

PlasticMan_2

If I ran a grocery shop and my weekly sales breakdown by product was as follows:
£500 potatoes (50%)
£300 carrots (30%)
£200 other stuff (20%)

I think it would be reasonable to say that carrot sales constituted a large contribution to my revenue, if not the lions share. It makes no difference whether I have only two customers buying £150 worth of carrots each, or 300 customers spending £1 each on carrots. 30% is 30%.

Maybe contribution isn't a good word to use.

And if, for some reason I couldn't sell carrots any more (but my costs remained the same - I still had to buy the carrots for some odd reason?) I would have to seriously rethink my business model or get pretty poor pretty quickly.

Sorry if that seems a bit silly, but I can't think of a better way to explain myself.

To me, this is the reason banks will never voluntarily become fairer (ie abandon overdraft charges). No customer anticipates getting into circumstances where charges will be applied, but everyone wants the cheapest banking available.

ILW

PlasticMan wrote: »

Only 30%!!! Nearly a third! The second highest income stream. And that's revenue, not just profits.

I am taking the word subsidise to mean "support financially" rather than "completely cover the costs of..." (ie the actual definition). Thanks for the figures but they appear to make the point you are arguing against. No-one is saying charges are the only way banks make money, but you've just pointed out that they are a major contribution (in the context of current accounts).

I would be very interested to know what the following works out as for a major UK retail bank.

total monthly overdraft charges/total number of current accounts (held by all customers)

Since that would be the monthly account fee required to cover the costs of abolishing the charges. Obviously there would be many other ways that the difference could be covered (less interest on current accounts, transaction charges) which would also be fairer, but would also be unpopular with freel0aders like ILW.

Hello its me.
Think you may have taken my post a tad too literally.
The bank has chosen to not directly charge me for the services I use and I would guess this is being partly subsidised by others that keep getting hit with charges. I am not going to offer voluntary payments to change this.
To be honest, if the bank decided they did want to make a small transaction charge or monthly fee, I would not be particularly outraged.
My original point that for most people, high charges could be avoided by taking more care of their finances and not constantly trying to "keep up with the Joneses" still stands.

Alpine_Star

PlasticMan wrote: »

If I ran a grocery shop and my weekly sales breakdown by product was as follows:
£500 potatoes (50%)
£300 carrots (30%)
£200 other stuff (20%)

I think it would be reasonable to say that carrot sales constituted a large contribution to my revenue, if not the lions share. It makes no difference whether I have only two customers buying £150 worth of carrots each, or 300 customers spending £1 each on carrots. 30% is 30%.

It might be reasonable to say your carrot sales constituted a large contribution but unreasonable to describe them as the ''lions share'' while ignoring potatoes. But my point is, do the customers of potatoes and other stuff think that their purchases are 'free' and somehow paid for by the carrot buyers as ILW seems to think?

PlasticMan_2

ILW wrote: »

My original point that for most people, high charges could be avoided by taking more care of their finances and not constantly trying to "keep up with the Joneses" still stands.

Your original point only stands if you can safely say that "most people" paying the charges (unarranged overdrafts, returned items, etc) are doing so because they've "not taken care" and have foolishly and frivolously spent outside their means even though they have a good income. And anyway that would still only be "most people" - what about the others? Shall we just leave them at home with their screaming hungry kids while their debts mount up and they lie awake at night and tear their hair out with worry?

Imagine you are supporting a family on a low income. No savings but making ends meet, slowly paying off your debts, etc. Then suddenly one month £200 just disappears. Maybe an employer messes up a payment just before the bills go out, or a cheque gets cashed months after you wrote it, and that can all be rectified, but the £200 of charges is never coming back. Then you are short the following month - do you cancel all your direct debits (the rent, the credit card payments, the fuel bills)? Stop using your card, although you have no cash and you have no food to feed the family? Or just get more charges, watching the money disappear from your account because the bank just have to click their fingers and it's gone.

It's a lot harder to manage money when you have none. It's difficult to explain to someone who hasn't been there, but if you haven't you should just consider yourself lucky and hope it never happens to you. It's the worst kind of loan shark behaviour. The banks could stop all this across the board today, by just automatically not allowing payments where no funds were available (and no charge), but they choose to allow it because it's so lucrative.

Obviously many people are very happy to take advantage (generally without thinking about it). Since it's so clearly the fault of the disorganised free-spenders, maybe you think it would be good if the charges were tripled, so they could pay your mobile phone bill, buy your groceries and get you a pint on Friday night too? Regardless of the exact circumstances of the people getting charged, there's no justification for them paying so much to help fund business elsewhere. You're basically saying "Yes, this is unfair, but that's OK because it's unfair in my favour and I think most of the people I'm sponging off are stupid and should know better anyway, and I don't care about the others.".

Read: "Q. Isn’t it just a punishment for taking money that isn’t yours?"
on this page: http://www.moneysavingexpert.com/reclaim/bank-charges#qa
for similar stories.


There's no way everyone would collectively decide to "offer voluntary payments", which is why this needs regulation.


@ Alpine Star
You are right - current accounts are not "free" in the sense that various elements are paid for in various ways - the main one being interest on account holder's money. Debit card transactions are charged to the retailer, etc. But current accounts are heavily subsidised by the charges. We are talking about 30% or £2.56 billion pounds here. That doesn't pay for the whole thing or even most of it, but it certainly makes life cheaper for those not paying charges.

My analogy doesn't really hold up here, but if Mr Grocer could buy the carrots very cheaply, and sell them at a high price (like overdraft charges - which cost the banks very little but make them a lot), then certainly the 30% income from carrot sales could subsidise cheaper potatoes and other stuff.

Premier_2

BoE lending rate = 0.5% p.a.
Rate received from my bank for my deposits in my current account = 2.47% p.a.

I wrote a cheque out today (within my available cleared balance).
How much will I be charged for processing that cheque?
How much will it cost the bank to process that cheque transaction?

Who do you think is paying for the difference, because I can't for the life of me understand how I am?