Banks must stop unfair overdraft charges

piggy bankPA

The government has announced a new deal for the banks. The idea is that they will make banking fairer, and in among the proposals is a demand that they must not charge us a huge fee for going a few pennies overdrawn.

However, there are two major catches.

The plans

The proposals, announced by Financial Secretary to the Treasury, Mark Hoban, and Consumer Affairs Minister Edward Davey are that overdraft fees have to be reasonable. The banks must also establish a system whereby they warn customers by text if there is any risk at all of them going into the red.

The new deal will also mean customers have the right to switch banks within seven days.

It sounds like a breakthrough, especially for the hundreds of thousands of people hovering close to the line every month, and suddenly finding themselves charged £25 or more for tipping just a few quid the wrong side of the line.

The problems

However, there are a couple of catches, and they are both significant.

First, the banks don't actually have to do anything about their overdraft charges until September 2013 - so we have to slog through almost two years of unfair charging and outlandish treatment before the banks have to pull their fingers out and behave decently.

Even then, they're not being told to remove all charges for going overdrawn by a small amount for a small time - they just have to reduce them. Surely this falls far short of the kind of wiggle room that most customers need in these tough times.

And second, at that stage they don't actually have to do anything, because the deal is entirely voluntary. Consumer Focus chief executive, Mike O'Connor, said: "It is disappointing that these measures are voluntary and that there are no plans to legislate to protect consumers from the effects of unfair bank charges. This is tinkering around the edges when substantive reforms are needed."

So essentially we are relying on the banks to do the decent thing. And does anyone remember what happened the last time the banks were left to themselves to decide what constituted the right thing?

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