Bank Charges - Its either pay now or pay later

If last week's ruling about unfair bank overdraft charges had been different and the banks had been liable to repay millions of pounds of fees, it would have been a victory for some clients. However would this have lead to everyone paying more for banking facilities?

Last week, the Supreme Court ruled that the Office of Fair Trading (OFT) was not able to investigate the fairness or otherwise of many banks charges for unauthorised overdraft fees. This is widely understood to mean that claims of unfair charges will now be thrown out by local courts and banks will not have to refund these fees.

This ruling lead to wide spread consternation from a number of consumer organisations representing bank clients who have been charged unauthorised overdraft fees. The OFT itself has stated that it will continue to investigate the validity of the bank charges on "other grounds". A spokes person for the OFT has said that "Unarranged overdraft charges are difficult to understand, not transparent, and not subject to effective consumer control".

I agree with the OFT that bank charges should be both reasonable and transparent and there are many examples of situations where this has not been the case. I believe that historically, the level of some fees levied on bank customers who have used unauthorised overdraft facilities have been excessive and unacceptable. In today's world of computerised processes, a situation where a client goes into an unauthorised overdraft by £1 for a single day and is charged £25 plus for a letter telling them such, cannot be reasonable.

However, I also feel that a happy medium is required. If banks are not allowed to make a reasonable charge if customers break the rules, then they will incur costs which they will inevitably have to make up elsewhere. Where this is the case, we will all have to pay the price.

It is highly likely that if the banks had been forced to repay historic unauthorised overdraft charges, they would have looked to re-coupe these losses by introducing charges for day to day banking facilities such as withdrawals from ATM machines and deposits over the counter.

Many campaigners are still smarting over last week's ruling. However, it may well be that we may look back on this situation and breathe a sigh of relief that a ruling which was intended to help a relatively small percentage of people did not back-fire with the result of forcing higher banking costs onto all customers.

We must also remember that the use of unauthorised overdrafts is not something that should be encouraged. Of course I understand that there are times when the use of such a facility is unavoidable. However, as someone who spends their working days trying to help people better manage their money, I feel that the charge levied in such situations should be reasonable but also punitive enough to discourage similar behaviour in the future.

I have been pleased to see that as a result of the action taken by the OFT, a number of banks have already reduced the fees that they will charge in the future for unauthorised overdrafts and made the rule of when these charges will be applied much clearer to their clients. I can only hope that all of the high street banks follow suit. If they do not, then they may find that they start to lose clients.