This is a Red Herring. The banks are in fact charging customers for NOT providing unauthorised overdrafts, and by bouncing payments.
It would seem perfectly reasonable for the banks to charge £35, if indeed they were somehow being forced to payout funds that hadn’t been agreed, as a form of additional lending. However that’s not what has been happening. You are in fact being charged £35 for each time the bank refuses to pay a bill or cheque from your account.
Now of course it absolutely clear that the bank cannot pay a bill from your account, when the funds aren’t there to cover it. Whether it be by direct debit, standing order or cheque, it is your responsibility to ensure that there are always funds available to cover these, when presented. However, it is iniquitous for the banks to charge such an astronomical amount for the non-provision of a service. The only cost to the bank, lies in the letter they send to you itemising their charge. That charge itself, is often enough to put you over your overdraft limit – they are happy to honour that payment, despite the lack of funds.
3 years ago, before the freeze was placed on all claims, I requested repayment of bank charges on 2 business accounts, over the previous five year period. The banks initially refused, but promptly repaid the fees plus interest (around £1,700), when I raised a small claims action at my local Sheriff Court.
The banks claim that the charges are well publicised, and are a sharp reminder to all customers not to exceed their agreed overdrafts, by setting up payments that will bounce. They also say that the provision of “free banking” is in part paid for by these charges, and that honest, organised and prudent customers should not be penalised by the reckless financial behaviour of others. What they fail to mention, is that these penalty charges amount to at least one-third of their revenue from retail banking, and that those poor saps paying them are in fact their best customers i.e. most profitable.
By most definitions, this practice would be described as Usury. That is, the practice of charging interest on a loan, which is considerably higher than the lawful rate. This practice has been outlawed since as far back as the year 325. The First Council of Nicaea in 325, forbade clergy from engaging in usury. At the time “usury” meant simply interest of any kind, and the canon merely forbade the clergy to lend money on interest above one per cent per month. As the banks charges are not a percentage of the amount owed (since they aren’t actually lending any money), they manage to get around this. They are however, supposed to be prevented from penalising customers arbitrarily high amounts above their own costs, when refusing to pay from a customer’s account. This point was argued successfully in court when credit card companies were doing the same to customers who did not pay their monthly minimum instalment.
This has been called a “Robin Hood” penalty, as it effectively takes money from those whose bank balances are scraping along the bottom, in order to provide free banking to customers who are never in the red. Taking from the poor to give to the rich is never likely to curry popular opinion, which is why the banks have sought to keep this a well kept secret for the past 20 years. Before that, we would all be paying a small amount each month for the privilege, and there was no question of any bill being paid from an empty account.
So what can we do now? The OFT has dropped the legal case against banks for the overturning of these charges. Does this then give free reign to banks to continue the practice? Let’s face it, the banks themselves are never going to give up this dodgy practice, which constitutes such a large part of their profits, especially now it has been tacitly sanctioned by the OFT. However, I have a plan. There is a bank which, when presented with a charge, seeks initially to pay from your available funds, and then, if those funds are insufficient, it looks to take payment from any one of several other sources you have registered, such as other bank accounts and credit cards, and in your preferred sequence. This bank is called PAYPAL. PAYPAL is the online bank, which is owned by eBay, the online auction website. No longer used simply as payment for items you have won on eBay, PAYPAL is fast becoming the preferred option for all manner of online payments. If PAYPAL would allow you to switch all your debits and standing orders to your PAYPAL account, you need never suffer another bank charge from the high street banks, for NOT lending you money. If enough people do this, maybe the high street banks will have to change voluntarily.