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

JohnPeard

I think you are missing my point here, Hereward.

For my part, I am really not the slightest bit interested in being paid interest on my current account, and neither do I have any real objection to the banks using the money in my account to invest or make interest on it. That is why we have 'savings' and 'current' accounts.

There is one big proviso - that they do not deny me access to that money. If the bank holds funds of mine - e.g. by keeping it in a suspense account before crediting my own - they cannot justify returning items unpaid in that peroid, and they certainly cannot penalize me (which they have done) with punitive charges.

Another way I differ in opinion from many contributors on this site is that I am perfectly happy to pay a monthly fee for banking services, and even a per-item fee. What I would expect, however, is that the service is provided efficiently and ethically. (Not "I'm sorry we know our IT systems are out of date, but we really are looking into this, and by the way here's a £65 fine")

Hereward

I agree with you JohnPeard, the electronic transfer of money between account providers, or other branches, should occur in near real time (I say near real time as the must be a few controls in any system to enable errors to be identified any corrected, but this should be a matter of hours); however, the payment of cheques should take slightly longer, but not the current three working days, as this involves a degree of manual handling.

Hereward

Al_Mac wrote:

Who pays to change the systems? And why should the banks want to?

In theory, changing the processes and systems is an investment for the banks; therefore it is in their best interests to do so as their current systems become obsolete they will need to be replaced (and it should help reduce their costs). It is highly probable similar issues were discussed when the banks went from paper based systems to more electronic ones.

JohnPeard

If I pay £250 to have my car serviced, I expect them to have the tools and equipment necessary to do the job efficiently and professionally.

e.g use a set of spanners rather than a old monkey wrench.

Who pays? We already have, it's just the banks have pocketed the money rather buy the set of tools.

Why should they update? Because they have a duty of care to act professionally and ethically.

In truth though, they already have the systems and equipment , but they won't implement changes until the British public start jumping up and down insisting they do, instead of blind acceptance. That is why we need sites like this one.

Probably a similar reason to why the Brits put up with over-priced and poor quality food on motorway services. We are an easy push-over.

Hereward

Al_Mac wrote:

You both obviously have long banking backgrounds, I'll bow out now.

I hope not, well they're not paying me anyway (if you exclude the interest)...

Call_Centre_Monkey

To those complaining about how long payment clearing times are, I understand the banks are developing a solution at the moment. We should hopefully see some forms of payment (ie Debit cards etc) being cleared within hours. Change takes time.

But again, this is on a tangent to the main argument.

Hubert_Dalrymple

The banks are perfectly entitled to charge defaulting customers exactly what it costs the bank to deal with that default and not a penny more. The law of contract does not exist to punish default, simply to remedy it.

It costs not one penny to a good customer when a bad one defaults. If the bank cannot be profitable without applying grossly inflated charges to the accounts of those who do default then the argument that defaulting customers are forcing banks to claw back their revenue elsewhere does not stand up at all UNLESS it is an admission that defaulting customers are subsidising other account holders to enjoy free banking which would otherwise would not be commercially viable.

I personally do not see how banks cannot make a profit without charging for regular current account banking. When accounts are in credit they hold the money to invest as they desire, generally at very profitable rates. They also deliberately apply three and five day transfer periods for bank transfers, cheques etc, during which time they deny the customer interest on the money, keeping it all for themselves. When accounts are overdrawn, they charge much higher interest than they pay on accounts in credit.

However, IF they really feel that personal banking cannot remain profitable without charges, that is not something to blame penalty charge reclaimers for. Be grateful that you have enjoyed free banking for so long on the back of others and accept that you may now have to pay.

Hazzanet

Hubert_Dalrymple wrote:

The banks are perfectly entitled to charge defaulting customers exactly what it costs the bank to deal with that default and not a penny more. The law of contract does not exist to punish default, simply to remedy it.

Absolutely, and it also exists to ensure both parties stick to their agreement, which people who exceed their overdrafts do not.

Hubert_Dalrymple wrote:

It costs not one penny to a good customer when a bad one defaults. If the bank cannot be profitable without applying grossly inflated charges to the accounts of those who do default then the argument that defaulting customers are forcing banks to claw back their revenue elsewhere does not stand up at all UNLESS it is an admission that defaulting customers are subsidising other account holders to enjoy free banking which would otherwise would not be commercially viable.

All companies have their own internal business arrangements. For example, Asda may buy tins of beans in at 10p a can, and sell them at 1p a can - a 9p loss. Are we all chasing Asda because the guys who buy Heinz baked beans at a grossly overinflated price are subsidising those buying Smart Price beans at 1p a can???

Hubert_Dalrymple wrote:

I personally do not see how banks cannot make a profit without charging for regular current account banking.

Just like Asda with the beans - they get you in on a loss leader and then sell you the more profitable stuff.

Hubert_Dalrymple wrote:

When accounts are in credit they hold the money to invest as they desire, generally at very profitable rates.

Banks are businesses, they exist to make a profit, as opposed to charities.

Hubert_Dalrymple wrote:

They also deliberately apply three and five day transfer periods for bank transfers, cheques etc, during which time they deny the customer interest on the money, keeping it all for themselves.

I agree, this shouldn't happen.

Hubert_Dalrymple wrote:

When accounts are overdrawn, they charge much higher interest than they pay on accounts in credit.

That's how banks work. Borrow money from savers at one interest rate, lend it out at a higher one to make a profit. Their raison etre.

Hubert_Dalrymple wrote:

However, IF they really feel that personal banking cannot remain profitable without charges, that is not something to blame penalty charge reclaimers for. Be grateful that you have enjoyed free banking for so long on the back of others and accept that you may now have to pay.

I already pay - I get a crappy interest rate while the bank's lending it out at a higher rate. I also pay each time I use my debit card - the retailer has to pay a commission charge which is included in their cost base calculation, and thus in the price of my purchases. I also pay while I'm overdrawn. Don't think it's all paid for by penalty charges. It isn't.

At the end of the day, if people adhered to their contracts, they wouldn't get charged in the first place.

Hubert_Dalrymple

Hazzanet wrote:

Absolutely, and it also exists to ensure both parties stick to their agreement, which people who exceed their overdrafts do not.

But the fact that other people do not stick to their contracts (for any number of reasons) does not affect the people who do. They do not suffer from the breach, therefore they must not profit from the remedy. The contract being breached is only between the bank and the defaulting customer, not between the defaulting customer and other customers.

Hazzanet wrote:

All companies have their own internal business arrangements. For example, Asda may buy tins of beans in at 10p a can, and sell them at 1p a can - a 9p loss. Are we all chasing Asda because the guys who buy Heinz baked beans at a grossly overinflated price are subsidising those buying Smart Price beans at 1p a can???

The comparison with Asda is utterly spurious. The contract for the purchase of a tin of beans is a single one-off contract. Once you have checked out, there is no ongoing legal relationship between you and the store. More importantly, there is absolute freedom of choice in the relationship. There is nothing forcing people to buy Heinz and therefore choose to subsidise loss leaders. Further, your purchase of a tin of Heinz is not because you have not complied with your contract with Asda. All companies are free to structure their trade operations as they wish. What they cannot do is force some customers to subsidise others.

Hazzanet wrote:

Just like Asda with the beans - they get you in on a loss leader and then sell you the more profitable stuff.

That is a totally different thing. The banks are welcome and free to drag you in with a great deal: balance transfer rates, very cheap mortgages, a tempting interest rate etc and then attempt to sell you other less competetive products. A free account may be a loss leader but loss leaders are made up for by other products, not by forcing some customers to pay many times the price for the same product.

Hazzanet wrote:

Banks are businesses, they exist to make a profit, as opposed to charities.

You misunderstand me. I was not complaining about banks making a profit or about their tactics for doing so. I was simply saying that I was unconvinced that these tactics alone do not do more than enough to generate profit without the need to charge users for accounts.

Hazzanet wrote:

I agree, this shouldn't happen.

I don't particularly like it, but see above. This was a tangential point and not central to the legality and morality of default charges.

Hazzanet wrote:

That's how banks work. Borrow money from savers at one interest rate, lend it out at a higher one to make a profit. Their raison etre.

I quite agree. See above.

Hazzanet wrote:

I already pay - I get a crappy interest rate while the bank's lending it out at a higher rate. I also pay each time I use my debit card - the retailer has to pay a commission charge which is included in their cost base calculation, and thus in the price of my purchases. I also pay while I'm overdrawn. Don't think it's all paid for by penalty charges. It isn't.

I quite agree. But penalty charges should not make up any part of the profit. A charge for a breach of contract can only be used to compensate the bank for their loss in that single breach, not to generate profit. This is what the law of penalties is all about. Damages are only ever available for your loss, not to give you an additional benefit that you would not have had without that breach. That applies to any civil claim.

At the end of the day, if people adhered to their contracts, they wouldn't get charged in the first place.[/QUOTE]

But whether or not you adhere to your contract is a private matter between you and the bank, and has nothing to do with any other customer. People have all sorts of reasons for defaulting under their contracts. They should compensate the bank for their actual losses in that single breach and no more. To reiterate, the civil law exists to compensate, not to generate profit.

Hazzanet

Rather than enter in to a lengthy and protracted debate into the whole affair, perhaps I should turn it on its head and ask the question:

Without the application of heavy penalty charges on an account where the contract between the bank and the customer is being broken, what incentive is there for the customer to keep their conduct in order, and remain within the terms of the agreement?

IMHO if charges didn't cause short term pain, there is no incentive to act within the terms of the contract.