Stategic rethink may mean increased bank charges

Banks are currently rethinking their strategy on current accounts, as part of a larger plan to seek new revenue streams in the current difficult climate.

 This may mean an end to free banking services, and in particular free current accounts, as charges are stepped up to anticipate the possible loss of other revenue sources currently under challenge. 

The major motivation for the rethink is the prospect of a severe curb on charges relating to late payments and unauthorised overdrafts. 

OFT to Challenge Penalty Charges 

The Office of Fair Trading (OFT) may soon get the go-ahead to challenge the fairness of bank overdraft and penalty charges, a lucrative income stream that brings the banks an estimated £3bn per year. 

While many overdraft and late fees have been charged at £30 or more, the Office of Fair Trading has expressed a view that any bank or credit card company charging more than £12 to the customer should have to justify its charges in public. 

The Office of Fair Trading has encouraged bank customers to consider switching accounts if new charges appear. “Where consumers are reluctant to change providers, firms have less incentive to compete vigorously. Also, new banks entering the market, offering potentially better deals, have less opportunity to expand,” the OFT stated in a recent update. 

Even if the OFT is not cleared to go after the banks on this issue, a second assault may be possible, as government may step in to pressure the banks to slash these punitive charges. The writing is already on the wall, as the government-backed Royal Bank of Scotland recently cut its overdraft charges by half to £15, in a move seen by many as a barometer of thinking in Whitehall. 

For the same reason, the future actions of both RBS and Lloyds TSB, which together account for half the current accounts in the UK, are likely to be imitated by other key players in the market. If both these government-backed banks decide to withdraw free personal finance services, their actions are likely to influence the remaining players in the market.