Thread: Will the government tell the banks to cough up?!

Saw this in yesterday's Independent on Sunday and thought it made interesting reading - wondered what others thought?!

Crunch point in charges saga

Will the banks fight to the last on unauthorised overdraft fees or will they have to recognise that customers are now their shareholders?

The Government's bailout plan for British banks could have major consequences for the continuing campaign for the return of unauthorised overdraft fees. Currently, seven banks and the Nationwide are set to appeal through the High Court against the right of the Office of Fair Trading (OFT) to rule on whether the levying of fees – sometimes as high as £35 a time – on customers who go overdrawn without permission is fair or unfair.


The charges net the banks an estimated £2.6bn a year but have been the subject of a consumer rebellion, with thousands threatening to take their banks to county court for recovery of fees levied over the past six years. Yet these claims have been put on ice, with the blessing of the Financial Services Authority, as the banks have been allowed to conclude their case with the OFT.


The banks lost in the High Court in April and are poised to appeal. A result is not expected until next year, although a seperate ruling given last week by the judge in the case may allow banks to dismiss many of the consumer claims currently put on ice. But the original ruling that the OFT has a right to decide on the fairness or otherwise of unauthorised overdraft fees remains untouched.


Nevertheless, with many of the banks involved in the case likely, in the future, to be partly owned by the Government, there are growing calls for a quick settlement. "We now have different branches of the Government, the OFT and some of the banks fighting each other, very expensively, in the courts," says David Kuo from financial advice site Fool.co.uk.

"The Government, with the extra power it will wield, should tell the banks to drop this time-wasting case and return the money illegally taken from consumers. The banks have to realise that the same customers they have been routinely overcharging for years are now their shareholders and should be treated better," he adds.


Neil Clarke, director at independent financial advice firm Lucas Fettes, says the way banks treat their customers will have to change, and this could start with the charges issue: "Post-bailout, I reckon people are going to be less tolerant of being told what they should do by the banks and the charges they should pay. However, a lot is still up in the air. We don't know how much involvement the Government is going to have day to day," adds Mr Clarke. "Will they just move against executive pay and dividends, as they have said, or go further?"


With banks short of ready cash and the cost of refunded charges likely to run into the billions, there is a big incentive for them to resist outside pressure and fight till the end.


"I fully expect them to continue because it's even more in their interests, with the credit crisis, to delay the inevitable," says Chris Warner, campaigns lawyer from consumer group Which?. "They may have made the commercial decision that it's best to lose in two years' time rather than six months as it would damage their balance sheets."


Mr Warner adds that once the appeal is concluded, the parties may carry on their battle in the House of Lords.

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Playing "Devils Advocate" for a moment.
Of course the other way it could be looked at, is that the Government could now feel obligated on behalf of it's taxpayer "shareholders" to rein in such Banks liabilities & outgoings, and/or in some way to maintain such practices, in order to bring them all back into a profit situation ASAP ??

In a recession many economists believe that economies need to be stimulated by either additional government spending or tax cuts to give consumers more cash to spend (which is then circulated round the economy). By persuading / forcing the banks to repay the charges the government would effectively be applying a windfall tax on the banks which is repaid directly to consumers.

There are also some advantages for the banks;
1) many of the charges are actually against accounts in default so by repaying the charges direct to the relevant accounts the banks would potentially be reducing their levels of bad debts (albeit at the expense of profits)
2) Most UK banks have a december financial year end and they are going to have a really bad year in 2008 in terms of profitability. It might be best to get all the bad news out this year (including charges refunds) and start afresh next year.