Billions of pounds could eventually be paid back to millions of bank customers when the Supreme Court delivers a judgement on overdraft charges this morning.
The court will decide whether to allow banks to be investigated by the Office of Fair Trading.
The regulator says the banks have imposed unfair charges on their customers for going overdrawn.
But any refunds could be a long way off.
If the court finds against the banks it will pave the way for a further hearing to decide whether the charges are fair and, if not, what a fair charge would be.
Firstly, surely there are more important things we need to resolve in the banking sector. Like monetary supply and reserve ratios.
But more importantly this is an issue of personal responsibility. It's the individual's reponsibility to look after their finances -- not the banks.
The fines may be disproportionate compared to the cost but they serve a purpose. Which is to encourage people to look after their finances.
In addition most of these fines only target persistant offenders. If you accidentally become overdrawn once most banks will refund the fine -- both Barclays and Lloyds do.
So what's the problem?
I hope the banks win this case. As it promotes personal responsibility and good financial management.
And hopefully it will allow us to move on to discuss the more important issues in this sector...
22 comments:
It is a general principle of the common law that the charge should be proportionate.
I don't think anyone is saying that the charge itself should be abolished, rather the charge should reflect the cost to the bank.
The banks have used this as a scam to wrack up debt on customers (who have no chance in this monopoly and who have been forced to prop up the banks themselves) charging £50 a go for a few pence overdrawn.
I thought the Libertairian Party would have been against usurious charges such as these. Perhaps I should re-appraise the manifesto of the MRLP.
Hmmm... Banks don't have to let you go over your agreed overdraft limit.
Ultimately you should look after your finances and then you won't have any problems.
And as I said in my post the vast majority of banks will refund the money if it is a few quid and a one off.
SumoKing: as long as the charge is defined in the agreement you sign with the bank on opening an account, I'm not sure how anyone can complain. They could charge 1,000,000% interest on everything you owe them, as long as this was voluntarily agreed to in advance. I've been caught by the odd £35/£40 charge because of going slightly overdrawn and it gave me the kick I needed to stop living off someone else's money.
Gordon: What's wrong with usury if you agree to the terms in advance? Libertarian means no government interference in private matters, which is what you're favouring.
I'd be inclined to agree except for the seemingly deliberate actions banks seem to take to get people to hit these limits. The process seems to be that all overnight tasks are completed in this order:
1) Attempt to pay everything out
2) Apply charges if 1 fails
3) Pay in money that would have covered all the amounts in 1
4) Deduct charges
Given that 1 & 3 will both be visible the night before the order can only be construed as deliberate on the part of the banks.
population of millions vs penalty charge profits in the billions, suggests that something is not working correctly
while you have limited liability for bank employees and owners as opposed to the personal responsibility the average member of society is expected to have you surely need state regulation (in so far as you can get sensible, minimal non hamstringing regs) of banks to balance out the disparity in bargaining power and ensure there is market competition
SumoKing:
"population of millions vs penalty charge profits in the billions, suggests that something is not working correctly"
It just tells me that people ought to be more careful with their money. If the bank honours a transaction that takes you into the red, you need to pay for that service. I'm still not sure where the problem lies.
As for the latter part of your post, what you're saying is that the state is the problem so let's use the state to fix the problem, which is circular. The limited liability for the banks is granted by the state, and the state is there to force all of us plebs to cough up when they go bad.
The problem with bank charges is exactly that - it's not a charge. A charge should be a fair reflection of the cost incurred. It doesn't matter what the contract states when a charge stops being a charge and becomes a penalty.
Argue about the righteous and feckless all you want, it doesn't affect the fact that a private company cannot lawfully "fine" you, despite what you may contractually agree to.
Lost in Devon:
No price ever needs to reflect, fairly or otherwise, the costs involved in providing the service. A price is simply reflects how much one person values another person's goods or services.
If the contract stated that you would be charged 'a sum of money' on exceeding you overdraft limit then you'd have been extremely silly to have signed such an agreement.
As it is, the charges are set out up front before you [i]voluntarily[/i] open an account. Once you exceed your overdraft limit you have already agreed to pay them the amount that they are charging.
It's a good thing you put the word fine in inverted commas because it at least shows that you realise you're wrong on some level.
Gary, even if you signed up to pay £x upon a certain condition being met it could still be ruled as a penalty charge, if it is not seen as liquidated damages.
See Dunlop vs New Garage 1915 etc
Well, I'm an anarchist, not a minarchist, so I'm not sure quoting precedents from the law are going to persuade me. It's just an argument from authority.
If you voluntarily agree via contract to pay someone upon their rendering of a service, then that contract needs to be upheld. If private contracts are not upheld - which is exactly what the OFT would have achieved had they won this case - then we lose property rights altogether.
Bank charges are absolutely crippling if you're in a situation that combines having large debts to pay off, combined with low/erratic income - which is a pretty good description of my situation for the last few years. When times were a bit better, I foolishly ran up some big credit card debts. I'm not complaining about that, no-one forced me to take out a credit card. But realising my mistake, I cut up all my credit cards six years ago and started a determined effort to pay them off. The trouble is, it only takes a week or two's unemployment to force my bank account into the red, even if only by a couple of quid. Then I get hit by a crippling charge, which results in me not having the money to cover the next credit card payment, utility bill or Council Tax payment that falls due. Result: late payment charges, bailiffs visits etc. The bank is forcing me further into debt when I'm trying to be financially responsible. I have literally paid thousands of pounds in bank charges over the last few years, usually due to going into debit by only a tiny amount. And there's no point saying "it's in the terms and conditions". Banking's not a free market, it's a government-protected cartel - all the banks operate in the same way and there's no competition to take my business to.
The law says that bank charges are only supposed to cover the cost of administration - it does not cost £30 or more to send out an automated letter. Banks are only one step up from loan sharks.
Stuart is right- banks are a cartel compulsorily funded by our taxes and protected by the force of of the state. If the state hadnt stolen my money and given it to them then they would all be gone. And the world would be a better place as the banks would have learned the hard way not to mix turbo capitalism and high street banking- personal responsibility for money ... thats the sort of thing they always say to us.
Ok this is an interesting debate I've sparked off here. But I really this issue is a charade. Something that in the long run is of little importance.
For example I believe a far more imprtant issue is the fact that a bank is able to call a savings account a savings account. Something it is not -- it is an investment account which has risk associated with it. But it gives the impression of security when most of us here know that banking is just a trumped up ponzi scheme.
It's issues like this that cost us the reall money because most people it's believe it's safe to keep all your money in one bank. So when the sh*t hits the fan bailouts are demanded -- which cost trillions.
In the grand scheme of things bank charges are of little importance.
Gary: Wrong? Far from from it - I suggest you take some time to understand the concept of contract law and how it sits with common and statute law.
Again, though, I'm not going to merit reverting to the law as an argument. At best, it's an argument from authority: it's against the law therefore it is morally bad. At worst, it's circular logic: something is against the law because it's illegal - that's tabloid logic.
I maintain that, should you sign a contract, voluntarily, you are bound to that contact, whether or not the terms appear 'fair' in retrospect.
RobW is correct, this is another example of arguing over the minutiae of statist policy, when the elephant in the room re economy is fiat currency, inflation and central banks.
fiat currency, inflation and central banks.
I spent this morning explaining to my girlfriend how fiat currency works, and inflation by debasing Sterling. She sounded so incredulous it made me think I was wrong!
The banks will always expand disproportionately to the 'real' economy because they can literally print money out of thin air. Like a builder taking two months to build a house, and a competitor turns up with the ability to magic them out of thin air with a click of his slimy fingers.
Sterling should be protected from such abuse. Government coinage, stick the central bank up its own arse. Plank of the Communist Manifesto by the way.
If you don't like the terms, don't sign the contract.
All bank contracts are almost identical as they act as a state funded cartel. hence the choice is sign the contract or don't have a bank account - which is a tough choice...
We need a banker to come on this thread and talk about the barriers to starting new banks. I suspect we'll find starting a genuinely new bank is rather difficult, if not, then the like of Martin Lewis know what to spend their time doing...
The one that gets me more is the "failed direct debit" penalty charge.
If I am not able to pay a Direct Debit to my phone provider because my accound has insufficient funds...
that is a matter to be discussed between myself and my phone provider...
what business does the bank have charging me because the transaction failed!
What I think we need is some healthy withdrawls...
I would say that I do agree that banks should be allowed to make these charges...IF voluntarily agreed upon...
however I think we should reserve the right (and excersise it) to withdraw our money.
We are the best regulators of all!
If banks really do start taking the piss...well then we all hapilly agree to simultaniously withdraw our money from them.
I know you will say: "the money isn't there" and "not all of us will get it"...
this is perfectly true, however with the socialism we are seeing now we will most likely be insured by the government for every penny we cannot withdraw intime, But most importantly...
we will bring the issue to the surface...
that the whole fractional reserve banking system is a fraud!
The Banks are a Monopoly, we don't do monopolies
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