Bank charges: good news for in-credit customers

This week’s surprise legal victory for the banks on overdraft charges is good news for accountholders who remain in credit as it has removed a threat to end their “free banking”, according to analysts.

The Supreme Court, the UK’s court of appeal, ruled that charges on unauthorised overdrafts – which can be as much as £35 a time – were not subject to unfair contract legislation. Up to 1m customers who have been seeking refunds for these charges could now see their claims rejected.

If the banks had lost the case, analysts had feared they would seek to claw back lost revenue by introducing fees for all customers – including the majority who are never overdrawn. Banks levy up to £2.6bn a year in unauthorised overdraft charges, which hit one in five current account customers, according to the British Bankers’ Association.

Government ministers still urged the banks to reach a voluntary agreement with the OFT to make charges on unauthorised overdrafts “fairer”, and threatened to legislate if this approach failed.

David Black, banking consultant at Defaqto, the research firm, said that customers should consider switching banks to take advantage of competition among current account providers. There was “not enough” account switching, he said, in spite of offers such as introductory credit interest rates of up to 6 per cent. For example, the Halifax Reward current account gives £5 per month to customers who pay in £1,000 a month.