I can't believe banks can get away with this...

grumbler

cgnao wrote:

This is good news for ordinary people on low incomes.

This is bad news for them.
This is Pyrrhic victory. The only result of this populist anti-market decision could be that more ‘low-income’ customers that can manage their accounts properly will find it more difficult to open normal account with such credit facilities as overdraft and cheque book. Banks will offer them only the most basic accounts with cash cards.

Interest rate must reflect risk involved. It is obvious that unauthorised overdraft involves more risk for bank than authorised one. Hence, there are no rational grounds for charging the same interest on authorised and unauthorised overdrafts.

cgnao

grumbler wrote:

Interest rate must reflect risk involved. It is obvious that unauthorised overdraft involves more risk for bank than authorised one. Hence, there are no rational grounds for charging the same interest on authorised and unauthorised overdrafts.

You are missing the point. Higher unauthorised overdraft rates are acceptable. Unjustified charges, which banks apply in addition to higher unauthorised overdraft interest are unenforceable.

The higher rate (usually in excess of 20%) is enough compensation for the increased risk and most importantly it is proportioned to the amount involved.

grumbler

cgnao wrote:

You are missing the point...

I am not missing the point. I just argue with Which? (with all my respect to them) that 'has called on all banks to follow the lead of Alliance and Leicester and the HSBC, which now charge the same rate for unauthorised overdrafts as they do for authorised ones'.
I also find it fair to charge customers for spending money that they do not actually have and are not allowed to spend. If you cannot manage you account properly, just withdraw cash from a cash machine and pay cash for everything! Cheques, Direct Debits, card purchases etc are not for you! You have free banking, free services and banks have no obligations to provide you with credit 'on demand'.
P.S. 'You' here is general 'you', nothing personal...

davidcampbell

have to agree with grumbler and marky on this one.

charges are there as a deterrent. they are only applied if a customer spends money they do not have.

in no other circumstances outwith banking would so many rational people think its ok for someone to spend someone elses money without permission.

poor laura sanders in the case you highlight cgnao thinks she has suffered and could do nothing about thecharges incurred.

its a pretty radical idea but she could have not incurred them in the first place!

also, if thats the same article ive seen ebfore (and i think it is) then part of it is missing. the bank in question didnt dispute the decision in court -

you could argue this looks like they thought they were going to lose but on the other hand it also means nothing has actually been proved.

MarkyMarkD

cgnao wrote:

Well, you might not accept it, however the courts have done so:

Press Release
14/02/2005

“CHALLENGE UNFAIR BANK CHARGES” SAYS MP AFTER LAURA v. GOLIATH TEST CASE

The Liberal Democrat MP for the West Cornwall and Isles of Scilly Constituency of St Ives, Andrew George, heralded news of the outcome of a recent County Court case on behalf of one of his constituents, Laura Saunders (of Goldsithney) which resulted in her victory against Yorkshire Bank plc in respect of bank charges amounting to £922 during 2004. Following what could be a very significant test case, Mr George believes that many banks should review their treatment of low-income bank account holders and has referred the case to the Secretary of State for the Department of Trade and Industry - Rt. Hon Patricia Hewitt MP - who has been encouraging pensioners and claimants to open up bank accounts to receive their benefit payments, rather than to receive them over the Post Office counter.

The case of Laura Saunders is set out below (see notes ). Ms Saunders is one of millions of people who suffer at the hands of banks and credit card companies that make much of their profits from variable charges which vulnerable bank account members can do little about. A number of large high street banks have raised fees for bounced cheques and unauthorised overdrafts and have increased the amount charged for customers for unpaid cheques and standing orders.

The consumer body Which? has called on all banks to follow the lead of Alliance and Leicester and the HSBC, which now charge the same rate for unauthorised overdrafts as they do for authorised ones (A&L charges 6.9% and HSBC 14.8%). In the case of Laura Saunders, she claimed £922 in the County Court, arguing that charges levied by the bank on her were an unlawful penalty.

Commenting on the case, Mr George said, “The case of Laura Saunders is typical of many constituents who have contacted me complaining about the penalties they face, often with little prior notification of the change in the rules by which their account will be managed. Quite frankly, I believe that many lending institutions get away with blue murder in their treatment of low-income account holders. I hope that this case will be a salutary lesson to them all.

“I also hope that the Government will sit up and take notice. They have been trying to bribe and cajole pensioners and benefit recipients into shifting the way they receive payments; from the Post Office counter to Automated Credit Transfer in to newly opened bank accounts. Many of those who are opening these bank accounts may find themselves in the same kind of difficulty as Laura Saunders found herself and Ministers should be aware that this could place account holders in difficulty.

“As far as contract law is concerned, this test case clearly demonstrates that penalty charges should not be enforceable if those charges are disproportionate. This is good news for ordinary people on low incomes. Laura took on Goliath and won,” said Mr George.

That case is NOT proof of anything. The bank didn't go to court. They failed to respond to the summons and hence she got judgement for the amount. Anyone can do that with a claim which the company/individual they are claiming from fails to defend and it doesn't prove that the claim was sound. A more truthful summary of the case is here. The MP is a complete moron for seeing this as a successful test case. All self-publicity and no thought IMHO.

Walletwatch

cgnao wrote:

You are missing the point. Higher unauthorised overdraft rates are acceptable. Unjustified charges, which banks apply in addition to higher unauthorised overdraft interest are unenforceable.

The higher rate (usually in excess of 20%) is enough compensation for the increased risk and most importantly it is proportioned to the amount involved.

Hi

While I agree that some of these charges do appear inordinately high, the principle of such charges being levied is not unjustified. I am happy if I can avail of free banking services in the UK, if only at the cost of those who cannot conduct their finances appropriately being charged for doing so. Accordingly, your argument that such charges being abolished will stand the poor in good stead also doesn't sail, as we might just see the banks charging for all kinds of transactions (a la other countries in Europe), and thus have to bid goodbye to free banking, if we continue to see such charges being challenged.

Secondly, my personal view is that the ethos of this site has been more to be aware of the T&Cs one signs up to, when one opens an account or a banking relationship, and then take advantage of any loophole / feature of that service offering, within the boundaries of the T&Cs set out. To that extent, if one begins to challenge the very same T&Cs, calling them unfair, I somehow don't see that to be in sync with the spirit behind this site. This is very much a personal opinion, and I am open to any counter-arguments / discussions on this one.

jimclark1967

Walletwatch wrote:

Secondly, my personal view is that the ethos of this site has been more to be aware of the T&Cs one signs up to, when one opens an account or a banking relationship, and then take advantage of any loophole / feature of that service offering, within the boundaries of the T&Cs set out. To that extent, if one begins to challenge the very same T&Cs, calling them unfair, I somehow don't see that to be in sync with the spirit behind this site. This is very much a personal opinion, and I am open to any counter-arguments / discussions on this one.

Completely agree - of course we'd all prefer not to have to pay charges for anything, but frankly if they're part of the terms & conditions then you have a choice - either go along with them and only spend your own money or keep it all in cash under a mattress of your choosing - most of which don't charge fees

strangel

In response to the above posts, I work for a 'big' bank and I know that there is a 'buffer' zone on accounts of approx £50 BUT this isnt for the customer to use as they wish this i just to cover them if they use their debit cards, as card transactions DO NOT always come straight out of their accounts, it will NOT cover them for direct debits, standing orders or cheques.
As for applying for overdrafts and not getting them even tho you have been with the bank for a long time and need one, well this is based on how the account has been ran over the past year and the type of account that you have, if you have been running the account badly you WILL NOT be able to get an overdraft and if you go thro an application and it is declined it WILL go on your credit history will experian and equifax.
If you are thinking about moving your account because of charges and going overdrawn then think very carefully as the new bank will have to check you credit history and you will have to run your account with the new bank for approx 1 year before they may give you overdrafts etc.

cgnao

Walletwatch wrote:

Secondly, my personal view is that the ethos of this site has been more to be aware of the T&Cs one signs up to, when one opens an account or a banking relationship, and then take advantage of any loophole / feature of that service offering, within the boundaries of the T&Cs set out. To that extent, if one begins to challenge the very same T&Cs, calling them unfair, I somehow don't see that to be in sync with the spirit behind this site. This is very much a personal opinion, and I am open to any counter-arguments / discussions on this one.

It's not a matter of opinion or ethos. It is law. Contract law. A penalty clause will be struck down as unenforceable unless it is a genuine pre-estimate of the loss suffered. It applies to any contract - here is an example:

In Jeancharm Limited -v- Barnet Football Club Limited (2003) J had agreed to supply football kits to B, the terms of which provided that if J was late with delivery, it would have to pay 20p per garment per day and if B was late in making payment, it would have to pay interest at 5% per week (the equivalent of 260% per year).

The Court of Appeal reaffirmed that it remains good law that a clause should be a genuine pre-estimate of damage in order to be enforceable. They held that 260% interest was an extraordinarily large sum to have to pay for administrative costs and therefore was a penalty clause and unenforceable. The court laid down four principles for deciding whether a clause is a penalty:

(a) The court should look at the substance of the matter rather than the form of words used in order to identify intention.

(b) The essence of a penalty would be distinct from a genuine pre-estimate of loss.

(c) One must consider the construction of the contract at the time of the contract and not at the time of breach.

(d) If the amount is extravagant or unconscionable in comparison with the greatest loss that could be perceived, the clause will be a penalty.

As far as the ethos is concerned, one question. Is it ethical that our free banking is subsidised by poor people in financial distress?

MarkyMarkD

OK then, taking clause (d) in your court case quotation, I don't see how £23.50 or whatever is "extravagant or unconsciable in comparison with the greatest loss that could be perceived" as the greatest loss that could be perceived is that the funds taken without permission are never repaid. Unless the unauthorised overdraft is less than the unauthorised overdraft/rejected payment charge, that charge doesn't seem to exceed the maximum possible loss in my view.