The other side of the coin: The case for bank charges

Call_Centre_Monkey

I know I'm not the only one who thinks the banks are actually in the right over the bank charges issue. While I understand charges etc (for being pennies over overdraft limits, credit limits etc) can be annoying, the fact is you have agreed to pay any charges the banks apply in advance.

Now, I know the argument is that they are 'unlawful'. Personally I don't think they are, but obviously that is a grey area that needs resolved.

Now, credit cards. The OFT decided a few months ago £12 should be the upper limit on fees on credit cards. Many people argue this is a good thing, but I think it is a bad thing.

Now, just say the banks gain £X of revenue a year through fees etc prior to the decrease. Therefore when fees go down, revenue from them goes down, thus making credit cards less profitable for providers. Again at this stage people may argue the banks don't deserve to have this money anyway as it is more than the 'actual cost' to the bank.

The bottom line is however; the banks have shareholders who want to see increasing profit. That just the way business is. Banks need the £X of revenue from the fees otherwise their profits are going to take a big hit. So what we've seen is a raise in the interest rates on credit cards, and a whole range of new fees introduced. These range from copy statement fees to a fee for changing when your bill is printed/due. Balance transfer fees have increased, as have cash handling fees. The net result means the banks are still taking in the £X of revenue.

Effectively the fee decreases on credit cards are going to lead to the 'good' customers subsidising the 'bad' customers inability to manage their money. Perhaps we have a customer who has been with a bank for 20 years, and pays off £200 of their balance of every month on time without fail, and doesn’t go over the credit limit. Due to the fee reductions, they now face higher interest and potentially other charges. Another customer who has been with the bank for a couple of years can't manage their money correctly and notches up charge after charge on their account. They are now paying less than they would have been before the fee reduction.

So what I'm trying to say is the banks will take in £X revenue from their credit cards, regardless of limitations on fees. Any fee reduction is effectively penalising the good customers and favouring those 'bad' customers. Another negative aspect is the £12 fee is less of an incentive for people to pay their bills on time.

We've also seen banks are far less likely to refund any fees now they have been reduced. If old Mrs 'I've been with the bank 20 years' was late, more often than not her first fee would be refunded. With the fees now reduced, it's extremely unlikely to be refunded.

Since the decrease customers have asked "So what's the charge if I'm late?" When they hear £12, many just don't seem too bothered. Of course people would prefer to avoid it, but it's a poor deterrent compared to the £25 late fee, which itself seems to have a bit of a reputation. Could it ultimately lead to greater debt for this country? Possibly.

What brought about the OFT reviewing credit card charges? People power. And there now seems to be an increasing emphasis on bank account charges. But surely the same thing is going to happen? People power, the media etc campaign against the high charges and try to claim the charges back. Eventually the OFT take note, review the situation and put a limit on overdraft fees too. What happens next? Other charges will spring up to cover the cost to the banks. How would you like to be charged for transactions you do on your account - Charged to spend your own money? And again, if charges come down surely there is less incentive for people to still within their agreed overdraft, leading to more debt for the country.


I'll once again mention the isn't to do with the legal side of the argument, it is to do with the practical side - what could happen in the long term if fees are to come down.

Is it infact selfish to claim back charges, bearing in mind that if people keep doing it is going to lead to other people having to pay for your mistakes?

So I put it out to everyone? Fee reductions and claiming fees back - Yay or nay?

ffs

Do you think it would be a good thing for banks to widen their definition of "Failed Items" so that it included failed ATM withdrawals, failed retail transactions via Electron, and failed attempts to withdraw cash over the counter?

Why should failed items only include Standing Orders and Direct Debits?

Lizzy

I do agree that the banks are a For Money Making Business. Why can't they be happy with making £X instead of £XXXX is it not just greed ? They do not have to increase interest rates etc they just do not want to lose a penny.

The arguement is not against charges, it is for reasonable charges. Take my example here.

I bank on the internet.

I used my debit card in the caffe in Morrisons supermarket for £2.55
I used it again for £24.00 for shopping.
It seems on the same day I had a DD going out of my account that I never had quite enough money for.

The charges I incurred were

£30 for the £2.55 transaction
£30 for the £24.00 transaction
£39 for paying the DD for me (even though I did not have enough money)
£28 for going into an unauthorised overdraft situation that they put me in.

Total £127 in 1 day.

These charges were emailed to me, not even the cost of a stamp.

The court cases are because the banks are not allowed to PROFIT from my/our errors/misfortune or whatever the reason. That is where the banks fall apart they can't prove that these are their actual costs.

I agree with you we should have to pay if we can't manage our money correctly and we/I am only asking for a fair amount in keeping with their costs. And yes they should not put their interest rates up there is no need. Why should you pay more in interest, but also why should you profit from my misfortune, isnt it enough for me just to pay a fair price.

Lizzy

Call_Centre_Monkey

I'm not necessarily saying the amount the banks take is fair, but practically we've seen (with credit cards) that if fees are reduced, it just leads to the cost being spread to other customers who do pay their bill in time/stay within their limit etc.

Edinburghlass_2

As the thread is about Bank Charges rather than reclaiming Bank Charges I'll shift it across to the Budgeting and Current Account Board

Tootsie_Roll

Lizzy wrote:

I do agree that the banks are a For Money Making Business. Why can't they be happy with making £X instead of £XXXX is it not just greed ? They do not have to increase interest rates etc they just do not want to lose a penny.

The arguement is not against charges, it is for reasonable charges. Take my example here.

I bank on the internet.

I used my debit card in the caffe in Morrisons supermarket for £2.55
I used it again for £24.00 for shopping.
It seems on the same day I had a DD going out of my account that I never had quite enough money for.

The charges I incurred were

£30 for the £2.55 transaction
£30 for the £24.00 transaction
£39 for paying the DD for me (even though I did not have enough money)
£28 for going into an unauthorised overdraft situation that they put me in.

Total £127 in 1 day.

These charges were emailed to me, not even the cost of a stamp.

The court cases are because the banks are not allowed to PROFIT from my/our errors/misfortune or whatever the reason. That is where the banks fall apart they can't prove that these are their actual costs.

I agree with you we should have to pay if we can't manage our money correctly and we/I am only asking for a fair amount in keeping with their costs. And yes they should not put their interest rates up there is no need. Why should you pay more in interest, but also why should you profit from my misfortune, isnt it enough for me just to pay a fair price.

Lizzy

Unfortunately a fact that is not often mentioned is that for banks current accounts are a lost leader simply there to attract customers in the first place that they can then sell more profitable products to. So whilst they make squillions in profits - it's not from bank accounts. Now with all the caggers re-claiming their charges these accounts are losing even more money for the banks. Clearly they are not going to put up with this for long and will bite back as is already being evidenced.

So we are now in a position where we are about to lose one of the only free and best banking systems in the world because of the actions of a selfish few who frankly should have managed their finances properly in the first place. I simply don't agree that it is only the poor and hard up who are affected as I have seen it first hand in thousands of cases. As we also know; in law ignorance is no excuse. For the odd transgression most banks would waive the charge if approached politely and they could see it was just a one off.

RibenaBerry_2

I can see the argument for allowing bank charges. Personally, I have never had a penalty charge (sorry, not trying to be smug, just slightly fixated with direct debits and the joys of online banking) and I have watched the news of bringing back annual fees on credit cards with dismay. I don't want to pay £25 a year for my credit cards, and my gut instinct is 'argh, why have people claimed back their charges and 'made' this happen.'

However, the other way of looking at it is that those who are poor with money are currently subsidising those who are good with it.

Take the example above: £127 of pretty much pure profit created from one person's minor error. That money then props up the costs (and, yes, demand from shareholders for profits) of running the accounts for everyone else. It doesn't cost £127 for the bank to fix the situation.

Also, these bank charges undermine a fundamental principle of English law. Our law does not allow penalty charges - i.e. it does not allow one person to actually profit from another's error. I think that that is a good thing, and a moral rule to enshrine in law. Instead, we allow the wronged party to recoup their losses. If these charges were comprised only of an admin fee (e.g. a fiver to send you the first notification, escalating if you do not fix it) plus interest on the amount, I would have no sympathy. That's just the cost of unauthorised borrowing. However, they are not. They are designed to punish and create profit from another's misfortune/stupidity/poor planning/dire financial situation, and that's against our law for good reasons, in my opinion!

MPH80

Putting the belief they are unlawful (or not) to one side for a moment - we need to address this issue of subsidisation.

Put simply - everything in this world is subsidised. When you go to the supermarket, and you look for the 3 for 2 offers or the RFQS stuff - you are being subsidised by the people who don't look for that deal. When you go out to eat - with your coupon from the paper for £10 off a meal - you are being subsidised by the normal diners.

To subsidise in banking is also very normal. Higher interest rates help subsidise lower interest rates for people with better credit histories.

The spin put on this issue is quite interesting.

A person who believes the bank should have the right to charge will say something like:

Why should I subsidise someone who isn't good with money?

Yet an opponent of bank charges will probably retort with:

Why should the poor subsidise the rich?

It's two different ways of looking at the same problem, and indeed, two different ways of categorising the main offenders. We don't know whether the main people to incur charges are poor ... we don't know whether they just don't care about their finances and we don't know whether they don't know how to manage them.

The example I've used before - and I think this states my position quite nicely - is to compare with insurance. I pay my home insurance premium - it's based on a number of things - including how dangerous my street is. If number 15 up the road gets burgled - I might expect it to add to the stats and my insurance to go up. I wouldn't begrudge them that - it wasn't their fault. But I would get annoyed if my insurance goes up because the person and number 17 keeps getting burgled and yet they continue to leave all their doors and windows wide open all day and night.

Put even more simply - I don't want to be subsidised by those who have no choice - I don't care about those who do have the choice and choose not to take care of their own finances.

The thing is - and the thing that grates with me - is there is a VERY easy way to avoid bank charges:

1) Have your wages paid into the bank on day x
2) On day x - go to bank and withdraw all your wages in cash
3) Put cash under matress and pay all bills over the counter using cash.

Since you know how much the wages are - it's a simple matter to reduce the account balance to 0. And since it's all cash - no cash - no purchase!

Utilise this system and the *only* people who will incur charges are those who cannot be bothered to manage their finances. As far as I'm concerned - those people fall into the same category as those who don't look for the 3 for 2 offers in the supermarket and thus deserve to get penalised.

However, bringing it back to the belief they are unlawful. The basic idea of profiting from a contract breach IS unlawful. There's no disputing that. Obviously the question is whether the banks are profiting. What strikes me though, as a more general point, is that it seems to me unfair that - for example - that deterrent clauses cannot be inserted into general contracts. To give a good example - a building firm might think twice about delaying a project if a penalty clause in the contract cost them 25% of the value.

If I was the building firm, and I made a promise to complete a project on time - I'd expect a punishment for missing that deadline. Not just to shrug my shoulders and say "oh well - it'll just cost me their next months rent on their current house". That just doesn't seem right to me. Where's the responsibility?

M.

RibenaBerry_2

MPH80 wrote:

However, bringing it back to the belief they are unlawful. The basic idea of profiting from a contract breach IS unlawful. There's no disputing that. Obviously the question is whether the banks are profiting. What strikes me though, as a more general point, is that it seems to me unfair that - for example - that deterrent clauses cannot be inserted into general contracts. To give a good example - a building firm might think twice about delaying a project if a penalty clause in the contract cost them 25% of the value.

If I was the building firm, and I made a promise to complete a project on time - I'd expect a punishment for missing that deadline. Not just to shrug my shoulders and say "oh well - it'll just cost me their next months rent on their current house". That just doesn't seem right to me. Where's the responsibility?

M.

My point - and sorry if I caused any confusion, is that penalty clauses are unlawful. We obviously agree on that general point.

My concern with bank charges is that, if banks could prove the cost of, say, a banked direct debit was £29, they could enforce the charge. The fact that they can't is, to me either (i) evidence of unwillingness to invest the time and money in the information gathering exercise; or (ii) evidence of the fact that it doesn't cost them £29. I have heard the 'oh, it's so hard to prove the cost' line many times from banks, but the fact is, you have to be willing to stand by assertions. If I want to sue for breach of contract, I have to itemise my losses. Why shouldn't banks do the same? All that is needed is a reasonable pre-estimate of loss, not a case by case assessment.

The morality of penalty charges is obvioulsy something which we will have to agree to disagree on! I can see the counter argument to allow them to incentivise correct performance. However, the power of such clauses is often used by the strong against the weak. In a world of total negotiating equality, perhaps your example would work. But the reality is that 90% of the time, the weaker party would stomach the penalty charge. In your example, it wouldn't be the building firm that had a penalty charge in their contract- it would be the poor sod buying the house who had a clause saying that, if payment was 1 day late, there was 50% interest. Then the bank doing the transfer messes it up (to take an example where there is no fault on the buyer) and the charge is triggered. I don't believe in allowing these clauses in the few cases where they would help, to the great detriment of most normal contracting parties.

Sorry. Bit OT.

MPH80

Sorry RibenaBerry - didn't mean to give the impression my post was a direct response to yours.

Mine was simply a general response. I'll leave it there though - the discussion about negotiation equality - while an interesting one is a bit OT as you pointed out.

M.

seven-day-weekend

[QUOTE=MPH80
The thing is - and the thing that grates with me - is there is a VERY easy way to avoid bank charges:

1) Have your wages paid into the bank on day x
2) On day x - go to bank and withdraw all your wages in cash
3) Put cash under matress and pay all bills over the counter using cash.

Since you know how much the wages are - it's a simple matter to reduce the account balance to 0. And since it's all cash - no cash - no purchase!

M.[/QUOTE]

Simple and sensible.

I do this more and more since I've been living in Spain.:beer: