MP attacks high-street banks’ “penchant” for imposing unfair charges

July 3, 2009 at 12:37 pm 1 comment

by James Easy

Labour MP Tom Clarke (Coatbridge, Chryston and Bellshill) has called for an end to “financial injustice perpetrated by the power of banks against individual consumers.”

He was referring to high-street banks’ penchant for imposing “unfair” charges on customers whose accounts are overdrawn for only a short time and for a relatively small amount.

“The Office of Fair Trading launched its investigation into bank charges in April 2007,” he said during an adjournment debate.

“It examined the fairness of charging terms for unarranged overdrafts on personal current accounts under the Unfair Terms in Consumer Contracts Regulations 1999.

“In July 2007, the OFT entered into a written litigation agreement with seven banks, one building society and the Financial Services Authority, with a view to bringing a test case to ensure an orderly and efficient process for the resolution of the legal issues.”

He continued, “Before the test case agreement was reached and the waiver was invoked, we were in the scandalous position in 2007 where banks had paid out a staggering £784 million to approximately 378,000 customers.

“Rather than defend their untenable position in the courts, banks paid out when challenged. We can take it as read that some of the banks would not pay out a single penny if they did not need to.”

Mr Clarke said that he was not wishing to jump on the bandwagon of hatred towards the banks.

He stated that the banks have been charging customers excessive amounts of “up to and including £38 on customers who exceed their limit. That is probably ten times the actual cost…and has caused financial hardship to many people [nationwide]”.

What is also surprising he says, is that “there is no moratorium preventing the banks from continuing to levy the charges I have mentioned, which I find completely unfair and also unnecessary.”

Mark Durkan (SDLP, Foyle) intervened, lambasting the way the House deals with the issue of banking and suggested a change: “Given the considerable degree of intervention and public ownership in the sector and despite the Trojan work of the Treasury Select Committee, this House surely needs to come up with some better device for dealing with banks in the current situation. Perhaps having a specific Select Committee on banking would put manners on some of these proceedings.”

Clarke agreed and proceeded to give examples of his constituents who’d been unfairly treated, and how their stories conflict with those of banks: “When my constituents contact their local bank, the person at the other end is simply not interested. Banks may tell civil servants that that is not true, and advisers may try to persuade Ministers that it is not true, but I am implacably on the side of my constituents who are suffering hardship, and I believe their experience to be only too true.”

He then proffered his own solution: “I should like every bank to set up a special dedicated hotline so that customers in hardship can be dealt with immediately. In the present economic climate, although the Government are taking special measures to help people into employment or with their mortgages, banks too have a duty to provide a more responsive service for people suffering real hardship, particularly while the “waiver” is in place. I intend, with the support of other Members, to pursue the issue with the Financial Services Authority. However, I invite my colleagues in the Government to accept that the status quo is unacceptable, and to establish a better system for dealing with complaints about unfair bank lending charges for people suffering hardship.”

He continued: “It is time the Government stepped in and said enough is enough. After all, when the banks went bust they were rescued by public money—substantial public money. The Government have rightly ploughed countless billions into saving the banks from collapse and helping to protect savers. The Government not only have the moral authority but also the financial leverage to leave the banks in no doubt that when the Law Lords announce their decision this must end.”

The legal case he refers to is explained here: http://www.guardian.co.uk/money/2009/jun/23/banks-charges-appeal

Responding for the government was Treasury minister Sarah McCarthy-Fry.

She spoke about the general Government desire for banking and regulatory systems in the future: “There has been a fundamental breakdown of trust in the global financial system. All of us—Governments, regulators and the industry itself—need to work together to rebuild that trust. That process will take time.

“There are no instant remedies or overnight solutions; it starts with an acceptance that mistakes have been made in the past, and a willingness to learn the lessons. Although I recognise the need to reform the financial system, we must also be careful to retain what works.

“We need to walk a fine line: there must be sufficient regulation to safeguard the public interest, but not so much that we stem the flow of credit and stifle the very innovation that can benefit us all.”

Before moving on directly to the issue of bank charges: “The Government are taking action on bank charges. The Office of Fair Trading is pursuing its test case against a group of banks about charges for unauthorised overdrafts and items that are returned unpaid.

“Subject to the House of Lords decision, the OFT has written to the banks with a preliminary view on the fairness of the charges and embarked on a data-gathering exercise to provide the material on which to base a final decision.”

She summed up by saying: “We must all work together to ensure that we learn the lessons. It will take time, but if we clean up and reform the banks, change their culture, and strengthen regulation, people can begin to regain their trust in them. That includes ensuring that the regulatory framework protects customers from excessive charges.

“We also need to look at where improvements can be made to banks’ corporate governance and business conduct, and ensure that charges are simple, proportionate and transparent, and we must do this in a way that supports the flow of credit to consumers and business.”

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Entry filed under: Commons. Tags: , , , , , , , , , .

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1 Comment Add your own

  • 1. banks  |  July 4, 2009 at 1:39 am

    Thank you for this article really a big help for everyone.

    Reply

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