subject: Banks Consider 'opt-out' Option On Current Account Overdrafts [print this page] The Office of Fair Trading (OFT) has revealed that UK banks are looking at reviewing the way that their overdrafts are managed, making it easier for customers to opt out of access to unauthorised overdrafts in order to avoid charges associated with going overdrawn on bank accounts.
A case put forward by the OFT last year that challenged the way banks charge fees was thrown out by the Supreme Court, which earns them billions of pounds each year.
But the OFT and the government are continuing to apply pressure on the banks to change their ways.
The OFT has said if there are no obvious improvements in how customers are treated when they find themselves overdrawn within the next two years, it will call for the law around charges to be changed.
John Fingleton, OFT chief executive said "We believe that the commitments agreed by the industry today, along with changes by individual banks already made or expected in the next two years, should lead to a market that works better for consumers,"
"We will continue to closely monitor the banks and will reconsider the need for action, including legislation, if they fail to deliver these changes."
After recent negotiations, the banks agreed to provide customers with the option to have overdrafts withdrawn automatically when going into the red.
The FSA refused to provide details of the banks' emerging proposals, saying that it would breach "commercial confidentiality".
But it did say that banks would provide a method for customers to avoid going into the red in the first place by allowing them to monitor the state of their current accounts more closely.
On top of this, they have agreed to give "better treatment" to customers that go overdrawn and fall into financial difficulty.
The British Bankers Association said: "We look forward to working with our members and the OFT to further enhance the services that banks offer."
Overdraft fees are currently one of the largest sources of income for High Street banks, with a massive 2.6bn generated in 2006 alone.
In December the banks won their test case after the Supreme Court ruled that the OFT did not have the legal powers to challenge the right of banks to apply overdraft fees.
Consumer groups campaigning against the "unfair" overdraft fees criticised the OFT's latest move.
Consumer campaign group Legal Beagles, said: "[We] are very surprised and extremely disappointed at the OFT's press release on bank charges which offers consumers no tangible protection against the imposition of unfair and extortionate charges".
"The Office of Fair Trading's report, following nearly three years of investigation into the personal current account market in the UK, is extremely weak and does nothing to improve confidence in the regulator or the banks."
Marc Gander of the Consumer Action Group said the OFT had "nothing to cheer about or to congratulate itself about" and that "Despite its powers and its influence, the OFT has achieved very little."
"It has been defeated on the test case charges issue because it allowed itself to be corralled into dealing with a very narrow point of law and despite a very clear signal from the Supreme Court that there were another more realistic routes to make a challenge on behalf of bank customers, it has declined to do so," he said.
The OFT said that pressure from the group together with greater competition in the market has already resulted in a reduction to the average fee charged for those that go over their agreed overdraft limits.
According to the OFT, the fees applied for bouncing a cheque or other payment have dropped from 34 in 2007 to about 17.
The OFT said: "Over the next two years, the OFT will monitor developments in the market, in particular the options available for customers who do not want access to unarranged overdraft facilities, choice around charging structures, the level of unarranged overdraft charges, and the treatment of customers who find themselves in financial difficulty."
