Banks May Have To Cut Penalty Charges - Woohoo!
The Office of Fair Trading is seen telling banks in the next few weeks to cut or cap the penalties it imposes on customers, like those for credit card late payments, which an analyst said could reduce their revenues by up to 1.5 billion pounds.
The OFT is expected to announce its ruling on late payment and other charges in the next few weeks, and it has said the principles set out will apply to other bank charges like those for bounced cheques.
The OFT said last July it had provisionally concluded the default fees applied by credit card firms were excessive, and the watchdog is expected to tell them to cut fees or cap them.
Investment bank Credit Suisse estimated UK banks generate about 2 billion pounds of revenue from penalty charges across bank accounts and credit cards and said it expects the OFT to rule against the banks.
"At the extreme we estimate that up to 1.5 billion pounds of this (revenue) might disappear," Jonathan Pierce, Credit Suisse analyst, said in a research note.
He said the worst affected banks, in terms of the impact as a percentage of group profit, were Lloyds TSB, Barclays and Alliance & Leicester.
A report last November by Moneyexpert.com, the financial comparison website, said average bank charges had increased by over 30 percent for some products over the past two years.
It said a bounced cheque will on average cost the customer 32 pounds compared to 24 pounds two years ago and an unpaid direct debit and an unpaid standing order both cost the customer 31 pounds on average.
Some consumer bodies argue that banks should not charge more than the cost of administration.
Banks are under fire for their charges in a number of areas, most notably for charging customers high prices for insurance to cover the repayment of loans (payment protection insurance or PPI) if they fall ill or lose their jobs.
"We don't have too much sympathy if they are overcharging their customers and not making much effort to make sure customers are making informed choices," John Fingleton, chief executive of the OFT, told Reuters last month about the PPI investigation.
© Reuters 2006. All Rights Reserved.
The OFT is expected to announce its ruling on late payment and other charges in the next few weeks, and it has said the principles set out will apply to other bank charges like those for bounced cheques.
The OFT said last July it had provisionally concluded the default fees applied by credit card firms were excessive, and the watchdog is expected to tell them to cut fees or cap them.
Investment bank Credit Suisse estimated UK banks generate about 2 billion pounds of revenue from penalty charges across bank accounts and credit cards and said it expects the OFT to rule against the banks.
"At the extreme we estimate that up to 1.5 billion pounds of this (revenue) might disappear," Jonathan Pierce, Credit Suisse analyst, said in a research note.
He said the worst affected banks, in terms of the impact as a percentage of group profit, were Lloyds TSB, Barclays and Alliance & Leicester.
A report last November by Moneyexpert.com, the financial comparison website, said average bank charges had increased by over 30 percent for some products over the past two years.
It said a bounced cheque will on average cost the customer 32 pounds compared to 24 pounds two years ago and an unpaid direct debit and an unpaid standing order both cost the customer 31 pounds on average.
Some consumer bodies argue that banks should not charge more than the cost of administration.
Banks are under fire for their charges in a number of areas, most notably for charging customers high prices for insurance to cover the repayment of loans (payment protection insurance or PPI) if they fall ill or lose their jobs.
"We don't have too much sympathy if they are overcharging their customers and not making much effort to make sure customers are making informed choices," John Fingleton, chief executive of the OFT, told Reuters last month about the PPI investigation.
© Reuters 2006. All Rights Reserved.
posted by Your Friends @ Myvesta.org.uk at
3/13/2006 11:45:00 pm
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