Magazine article Marketing

News Analysis: Bank Charge Backlash Intensifies

Magazine article Marketing

News Analysis: Bank Charge Backlash Intensifies

Article excerpt

Media indignation has led consumers to become more active in resisting 'unlawful' charges, writes Joanna Bowery.

Over the past year, the action of a few renegades to reclaim 'unlawful' charges levied by their banks has escalated into a consumer revolution As borrowers become aware that the law states bank charges must be proportional to the costs they incur, so more and more are challenging whether they should be penalised pounds 35 for being overdrawn by 1p.

This week, consumer-finance website Moneysavingexpert.com expects the number of downloads of its template letter for reclaiming bank charges to reach 1m. The saga provides a useful study in how a consumer-initiated campaign can swiftly gather enough pace to undermine marketers' plans.

'All newspapers, from tabloids to broadsheets, are united in condemning banks for these charges, and all provide advice on obtaining refunds,' says Jeremy Thompson, managing director of media-evaluation agency Durrants.

Much of the furore is based on analyst predictions that the big-five banks will post combined profits of nearly pounds 40bn this month. Consumer group Which? claims that unauthorised overdraft fees account for almost 12% of this figure.

The press is ramping up its campaign against the charges ahead of an OFT announcement next month on whether it will launch an investigation into the fairness of bank charges.

The banks have retaliated by indicating that they may start charging consumers to hold a bank account if they are forced to cut fees for unauthorised overdrafts, bounced cheques and letters.

In November, First Direct was first to unveil such plans, and last week Nationwide chief executive Graham Beale suggested his company may introduce a current-account fee. Furthermore, some banks are closing the accounts of customers who reclaim fees and telling them to take their business elsewhere.

Lloyds TSB is even threatening to charge a pounds 35 annual fee to about 50,000 customers who do not use their credit card regularly. Price-comparison site uSwitch, which estimates the charge will generate pounds 1.79m, expects other banks to follow suit as they try to claw back the revenue they have lost since OFT intervention on late-payment fees last year.

The media frenzy over bank charges can be traced back to last April, when the OFT ruled that default charges on credit cards were unlawfully high and suggested companies cut late-payment fees to a maximum of pounds 12. At the time, the OFT warned that 'these principles also apply to default charges in other consumer contracts, such as those for bank overdrafts, store cards and mortgages'.

Neil Faulkner, personal-finance writer at consumer-finance website Motley Fool, says consumer unrest predates the OFT ruling. 'There were already a few bank-charge websites with chatrooms,' he says. 'The first was probably penaltycharges.co.uk, which was set up by one of the first claimants, Stephen Hone. The biggest and best bank-charges website was ConsumerActionGroup.co.uk, which had more than 20,000 users. No mainstream or personal-finance sites had picked up on the issue.'

That soon changed. 'Word of mouth, or, more accurately, email, seems to have been the main cause for the snowballing number of claims,' adds Faulkner.

Durrants' Thompson suggests that websites, particularly Moneysaving-expert.com, which is run by broadcast journalist and consumer champion Martin Lewis, popularised the idea of demanding charge refunds. …

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