MPs to investigate 'rip-off' overdraft charges

13 April 2012

Banks are to be investigated by MPs amid allegations of profiteering, rip-offs and threats to impose annual fees on current accounts.

The powerful Treasury Select Committee has announced an inquiry in the wake of figures showing the eight biggest names made more than £40 billion last year.

MPs are concerned the banks may be operating a complex cartel which guarantees huge profits, rather than competing on prices and value.

Recent evidence suggests the major banks have manipulated interest rates on loans and savings to dramatically increase their profit margins.

Separately, the banks are currently under fire following revelations that they have been making millions of pounds from what are illegal and unfair penalty charges.

As a result, the amount of profit made per customer has increased rapidly in recent years.

Seven years ago, a Treasury-funded study headed by Don Cruickshank identified over-charging of consumers and small businesses running at £5 billion a year.

However, Chancellor Gordon Brown failed to act on many of the recommendations with the result that profits have continued to spiral.

The MPs are particular concerned about dark threats from some industry leaders about the imposition of fees on current accounts - killing so-called free banking.

Colin Breed MP, a Liberal-Democrat member of the committee, said: "If they are going to throw the gauntlet down by threatening to impose new charges, then we will pick it up.

"They may well rue the day when they decided to be greedy in terms of fees and charges.

"There seems to have been a sheer rush for profit, rather than recognising they have responsibilities to customers and to act within the proper boundaries of the law and the industry's banking code."

Mr Breed, who worked for one of the retail banks for 30 years, said: "We want to see whether a proper market actually exists, whether there is any evidence of a cartel operation.

"Sometimes they have the ability to operate in a pack, following eachother on charges. They give the impression of competing, but like the supermarkets, for example, they repeatedly turn in record profits."

At the moment, the banks are regulated by a voluntary code, headed by the Banking Code Standards Board. However, MPs will consider whether this body should be replaced by a statutory body with legal powers.

Mr Breed said: "My feeling is that the code should be significantly strengthened. But if the banks are not prepared to go along this voluntary path, then we may recommended the government sets up a statutory body."

The original Cruickshank report called for the setting up of a watchdog, called Paycom, that would attack various hidden charges and behind the scenes scams.

For example, it identified the high charges imposed on retailers every time a customer pays for a bag of groceries or a restaurant meal with a plastic card, which has been likened to a tax on shoppers.

And it complained about the long time the banks take to process a cheque or direct debit. Action to tackle these issues has been painfully slow.

One recent independent study showed how the major banks have increased their profit margins on savings and loans.

Interest rates charged to borrowers have risen in line with increases in the Bank of England base rate, however savers have not been offered the same increases.

Research published the Lib-Dems claims the amount of money banks are making per customer has risen by 83per cent since Labour came to power. It put the figure at £230 a year.

The Lib-Dem shadow chancellor, Vincent Cable MP, said: "Banks are still enjoying excessive profits, based all too often on the exploitation of vulnerable customers through unfair, and in some cases illegal, bank charges.

"It is imperative that there be a new review of the banking sector, with a complete overhaul of the banks' monopoly."

Some consumer groups argue that the huge scale of the profits justifies a windfall tax in order to bring the banks into line.

The last time the banks were hit by such as tax was in 1981, when the then Conservative chancellor, Geoffrey Howe, collected £350 million.

Eddy Weatherill, of the Independent Banking Advisory Service, said: "The only time banks take notice is when they are hit in the pocket. "There has been a plundering of the consumer by banks. The industry is under-policed with no real control."

The British Bankers Association insist that strong profits are good for Britain and the nation's pension funds. It says banks pay billions of pounds in taxes and make huge contribution to pensions through dividend payments to shareholders.

It said: "A recent independent report into banking in 11 major countries clearly stated that UK banking was the most transparent and that, overall, customers here get a better deal."

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