Bank customers who complain about unfair charges are getting record levels of compensation, in a growing sign of banks’ willingness to settle claims.
The Financial Ombudsman Service has so far upheld 100 per cent of such consumer complaints against banks, a record stance in favour of consumers.
This follows a surge in complaints about fees related to overdrafts. In the past six months, the ombudsman has taken in as many as 1,000 criticisms about such fees and charges.
Walter Merricks, the chief ombudsman, said: “Our preference is always to resolve disputes informally, as this is quicker and more efficient for everyone involved. We have so far been able to negotiate settlements, satisfactory to both sides, without having to escalate matters or make formal decisions.”
Most of the letters sent by angry customers concern bank charges for bouncing a cheque or going overdrawn.
The ombudsman indicated customers’ new level of awareness stemmed from the publicity regulators generated recently when they questioned whether these penalties are appropriate.
“I’m sure the new interest is because of all the fanfare the Office of Fair Trading has generated on the matter,” said David Creswell, a spokesman for the ombudsman.
While the leading trade group for the banking industry defends overdraft charges as “fair”, it indicates the industry faces pressure to settle complaints as a means to avoid court cases.
“We hold these fees are fair and reasonable. What is an unauthorised overdraft? It’s a charge assessed if someone withdraws too much money from their account,” said Eric Leenders, a director at the British Bankers’ Association. “But there comes a point where you have to say commercially what’s the most sensible thing to do?”
Last month, the OFT said it would investigate the penalty fees that banks charge customers who go overdrawn.
The regulator has asked banks to justify the level of penalty fees charged on overdrafts and mortgages and will spend the next few months on a factfinding exercise with the British Bankers’ Association and the Financial Services Authority, the City regulator, before deciding whether to open a more detailed investigation.
The move follows its investigation earlier this year into credit card penalties which, it concluded, were “unfair” to customers. This has resulted in 36 credit card issuers cutting penalty fees to £12 from an average of £22.68.
The OFT said in April that the same principles should apply to overdrafts. The statement rang alarm bells for banks, which are concerned that their profits would be dented if overdraft fees fell. Some signalled it could spell the end of free banking, whereby bank customers are not charged if they remain in credit.
Retribution by the ombudsman is decided after customers’ banking histories are examined and negotiations take place with banks.
“If a consumer has paid three previous overdraft charges and writes a fourth cheque against the account, it might be the case that we decide they should accept some responsibility for their actions,” Mr Creswell explained.
In most cases, banks have agreed to repay from 50 to 100 per cent of the disputed charges. Penalty charges for unauthorised overdrafts can be as high as £30 a day. Which?, the consumer group, estimated that penalty charges cost customers £4.7bn a year.
Complaints by consumers against banks are continuing to rise. The Banking Code Standards Board, which operates a voluntary code of conduct for the industry, said it had received 2,242 complaints and queries in the year ending March 31 2006, compared with 1,812 the previous year.
Ellen Kelleher
