Banks under the scanner for high penalty charges

Banks under the scanner for high penalty charges

	Published : Thu, 26 Oct 2006 09:54 By : Andrew Stead Print this Story

LONDON - Bank customers will be facing an extended penalties for unauthorized overdrafts which could see them pay as much as 30 pounds for being overdrawn by just 1 pound, according to a research conducted by Moneyfacts.

The research points to Lloyds TSB as the main culprit. From November 1, Lloyds will be charging a penalty charge of £30, even if the amount overdrawn by a customer is just a £1 for a day. That means an interest rate of atleast 29 percent on their Classic Plus account.

The bank has even cancelled the £10 "buffer" previously given to customers if they have accidentally overdrawn. Others banks are expected to soon follow the suit. Banks such as Halifax, RBS and NatWest have already pegged their penalty fees at £28 for being overdrawn.

Moneyfacts claims that banks are increasing the overdraft penalty charges in order to make up for the losses occurred due to the Office of Fair Trading's (OFT) directive on credit card default fees. The OFT had issued a directive to the banks limiting the charges levied on customers who are unable to pay their credit card bills on time to £12.

Says Lisa Taylor, an analyst at Moneyfacts, "With the OFT challenging credit card charges it looks as if the banks are looking to recover some money from personal current account holders. These charges can be the same regardless of the amount you are overdrawn by and can be worse still if the bank also charges for not bouncing the cheques or direct debit that caused the excess."

However banks have hit back at the accusations saying that the increase should not be seen as a way to make up losses due to OFT's directive. The HBOS spokesman, Jason Clarke said, "We have a buffer that allows people to go into an unauthorized overdraft by £39 before they are charged. We also contact people who are getting close to their authorized overdraft limit recommending they review this to avoid charges."

He added that credit cards and bank accounts are separate sections and there can be no cross-funding between the two. He also said that apart from Lloyds removing the buffer, there are no indications of banks increasing current account charges.