It’s not the OFT’s job to set bank charges
The supreme court’s ruling on bank charges is a rare piece of good news for the banking sector and a rare piece of common sense imposed on regulators. It is not the Office of Fair Trading’s role to set prices.
Banks may well rip-off their customers – but that it the banks’ right. If customers don’t like it they can go elsewhere and if enough shift their business the offending bank will suffer. The OFT should no more involve itself in the process than it should seek to control the price of bread or beer.
The reason why water regulators at Ofwat dictate prices is because that is a monopoly industry, but even after the recent mergers there is still a wide choice of banks in Britain with new entrants adding to the number. If banks collude to restrict competition then the OFT can intervene, but until then, each bank should be free to set the terms it wants.
Indeed, on what basis would a regulator set prices? Cost? Cost-plus? An uncompetitive flat rate for all banks? A maximum fee? There is no sensible answer.
The supreme court did not decide that the banks’ fees are fair but that the OFT has no right to get involved, whether or not they are fair. In fact the fees relate to unauthorised overdraft fees and the cost to the bank is not only that of writing the letter but also the increased risk of a client that has borrowed too much and the risk of a client who, having broken one rule may break others. It is for the bank to decide how it prices that risk and it would be wrong to expect a cross-subsidy from customers who comply to the terms of their account.
It happens that exercising the choice to move banks is difficult at the point when the client has overdrawn without permission, but it is the same dilemma of a motorist who chooses a car and years later find the spares for it are expensive.
Bank bashing is a popular current sport but the supreme court, in reversing the rulings of the junior courts, has spoken sense. Of course conspiracy theorists might think the judges were politically pressured to avoid a decision that could cost the banks £5bn they cannot currently afford, but that would be as ridiculous as thinking the Bank of England could lend banks £61bn and keep it secret.
November 26th, 2009 at 6:47 pm
I would suggest you actually go and read the judgement, as your Article is WRONG and misleading the Supreme court said the OFT cannot assess the fairness under article 6, that is all, it then said the OFT could assess the fairness under different articles such as article 5.1. Therefore, the OFT has every right to get involved. I would suggest that you correct a very factually incorrect article.
The banks won a very small victory, but the consumers will win the war.