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Barclays is attempting to side-step the High Court case on 'unfair' overdraft charges with the new charging structure it introduced last week, according to banking lobbyists.

The bank announced it will reduce its unauthorised overdraft charges from £35 to £22 and bring in a 'personal reserve' buffer of £250 on average above customers' agreed overdraft limits.

The new 'personal reserve' offer aims to reduce costs incurred by going overdrawn without permission, but will allow customers to go even deeper into debt than their overdraft facility allows.

It costs £22 to go into the personal reserve and, once there, you can make as many transactions as you like over a five-day period. If you exceed the reserve limit, all payments will be bounced at a cost of £8 per transaction.

But because customers have to sign up to the reserve, campaigners against unfair overdraft charges believe the bank is trying to circumvent the overdraft case running in the High Court.

The personal reserve will come on top of existing overdraft levels and could be as large as £1,500.

Marc Gander, founder of the reclaim charges organisation Consumer Action Group (CAG), said: 'The High Court has already thrown out the banks' argument that these charges are a service, so clearly the banks would like to change things so that the penalties look more like a service.

'Barclays is doing this by giving consumers the chance to voluntary partake in this 'reserve', which most people will do if they are strapped for cash. But in some cases, the changes could work out more expensive.'

He points to the fact that, although the bank has lowered its initial overdraft charges, it has raised the rate on its agreed overdraft from 15.5% to 18%. This is well above the average rate on authorised overdrafts at 14.8%, according to price comparison website MoneyExpert.com.

CAG is about to submit a complaint about Barclays' charges overhaul to the Financial Services Authority. It believes the changes are 'misleading', will not leave customers better off, are an attempt to circumvent the High Court case with the OFT and contravene new Government regulations introduced last week.

These rules, the Consumer Protection from Unfair Trading Regulations 2008, warn traders to be professionally diligent and not to 'materially distort the economic behaviour of the average consumer': the average consumer must not be convinced onto buying a product they would not otherwise have bought.

Mr Gander added: 'Not only do we believe Barclays is in violation of all of these things by promoting the change to its bank charges, but without a doubt these changes have been made so that it can pre-empt any unfavourable rulings from the High Court.

'Even though customers now have to consciously sign up to the 'reserve', we believe that charging someone unnecessary high rates still does not make it a 'service'.'

His comments mirror those of the OFT in November of last year when it attacked the banks' defence that their overdraft penalties were a charge in return for a service.

Banks generally do not tell the customer in advance whether they will honour a payment that pushes the customer over their agreed overdraft limit; the OFT argued that merely deciding to offer someone a loan and then charging them regardless of the outcome was not a service.

However Barclays seems to have side-stepped this criticism by guaranteeing a personal reserve to all customers who are charged the £22 fee. So customers are being charged for an actual overdraft extension – arguably a service – and not merely for the bank's time while it considers whether to offer one.

Barclays' move may make them 'legally unchallengable', according to CAG's legal adviser, Doreen Saunders, a law lecturer at Farnborough College of Technology.

However charging £22 for five days is still 'morally wrong' when its peers charge over a monthly period, she said.

A post on CAG's website states Barclays' move is a 'blatant attempt to evade the possibility of the charges being found unlawful in a court of law' and shows readers how to make an individual complaint to the FSA.

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Barclays Bank is to cut the charge levied each time customers go beyond an agreed overdraft limit.

The penalty will change to £8 for each transaction made while in the red without permission, from a levy of up to £35 a day.

The change, happening in August, comes as eight banks prepare to defend the fairness of their overdraft charges in a high-profile High Court case.

The bank is also offering a temporary authorised overdraft extension for £22.

Large numbers

The Office of Fair Trading estimates that the banks make £3.5bn a year in unauthorised overdraft charges. In 2007, Barclays paid £116m to customers who sued for the return of their overdraft charges.

Marc Gander, of the Consumer Action Group, gave the cut in charges a cautious welcome.

"It vindicates our stance that the charges have been wildly excessive," he said.

"It shows that for years they have been milking their customers for nearly £30 more than they needed."

Account overhaul

The revamped current accounts are aimed at appeasing customers who are hit with large overdraft charges when they occasionally and accidentally go into the red.

From 18 August, the bank is launching its "Personal Reserves" - a buffer zone of about £250 which will be an authorised overdraft for five days.

All 11 million Barclays current account holders will receive a letter offering them the new Personal Reserve for £22 for each five days they use it. There will be no additional interest payments.

Anyone going beyond the limit - whether they choose the buffer or not - will be charged £8 for each unauthorised payment they make while in the red, up to a maximum of £40 per day.

Currently, bounced payments prompt a charge of £35 a day. Guaranteed payments are charged £30 (up to a limit of £90 a month).

"If customers continue to run their accounts as they are now, we will earn less money than before from overdraft charges," said a Barclays spokeswoman.

Those hit by bigger bills from the charges would be people using the new buffer zone who previously never exceeded their overdraft limit, and people who make more than four unauthorised payments a day.

The spokeswoman added that customers would receive advice to move to a more suitable account if they repeatedly triggered the five-day Personal Reserve, at a cost of £22 each time.

'Long wait'

Peter Vicary-Smith, chief executive of consumer association Which?, said he hoped other banks would follow Barclays' lead.

It vindicates our stance that the charges have been wildly excessive

Marc Gander
Consumer Action Group

We've long said that people want simple and transparent banking and Barclays is going in the right direction," he said.

"We welcome the reduction in unauthorised overdraft charges and a simplification for customers. It would have addressed a lot of customers' problems if this had happened years ago.

"We are pleased to hear Barclays' commitment to fee-free current accounts, and hope that other banks will follow their lead."

Legal battle

The banks and their customers are caught up in a long legal process which could eventually allow the Office of Fair Trading to decide what a fair charge would be for unauthorised overdrafts.

Eight banks are challenging the regulator, and the case is unlikely to be settled ahead of next year.

Since the two sides first agreed this long process of litigation last July, tens of thousands of claims for the refund of bank charges have been frozen in the county courts.

Nick Spooner, of consumer campaign group Legal Beagles, said: "This [Barclays' new structure] is unquestionably connected to the OFT test case."

Barclays, however, said it was planning the changes before the High Court case.

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The UK's banks have spent more than two years asserting vehemently that their overdraft fees were fair and just. Now the dam seems to have burst.

One of them, Barclays, has slashed its overdraft charges to just £8.

This is even less than the £12 default fee which all banks were forced to accept for their credit card customers in 2006.

Campaigners and consumers groups claim that Barclays' change threatens to undermine the defence of the entire banking industry in the forthcoming High Court hearing over the fairness of its charges.

The Office of Fair Trading (OFT), which has been challenging the banks over their fees, is not making any comment on this latest development.

But it must be fascinated by this turn of events.

One of the leading campaigners against bank charges, Marc Gander of the Consumer Action Group, was not so reticent.

"This move by Barclays dishes their own case," he said.

"Maybe they hope the whole issue will be dropped by the OFT."

And Chris Warner, a lawyer at the consumers' association Which?, said: "This does seem to be an admission by Barclays that its current unauthorised overdraft charges are unfair and that instead, a fee of £8 would be reflect its costs and so be a much fairer price."

Adverse ruling

Barclays says all this has nothing to do with the continuing litigation and that it has simply responded to its customers' needs.

This does seem to be an admission by Barclays that its current unauthorised overdraft charges are unfair and that instead, a fee of £8 would be reflect its costs and so be a much fairer price

Chris Warner, Which?

Specifically, the complaints of those who felt they were being clobbered unjustly if they went into the red briefly, or by accident, for instance, just before a salary cheque was due to arrive.

But despite claims to the contrary by Barclays, it is obvious that its new fee structure for overdrafts is in anticipation of an adverse ruling in the courts.

In April, Mr Justice Andrew Smith ruled that under consumer contract regulations, the OFT had the right to decide if bank overdraft charges were fair or not.

The banks are going to appeal against this in the Appeal Court.

But last week, the judge also prodded both sides into agreeing that another hearing, directly on the issue of fairness itself, should start before the end of this year, unless both the OFT and the banks could agree a deal before then.

Clearly the banks, or at least Barclays, have seen which way the wind is blowing.

The chances must be high that others, such as Lloyds-TSB, RBS-NatWest and HSBC, will copy it in some form or another.

What then?

This would surely lay the ground for the banks and the OFT to decide that further arm-wrestling in the courts about the current overdraft charges was a waste of time.

But it would not settle the matter entirely.

In July, both sides pitch up before Mr Justice Andrew Smith again.

This time, it will be to argue whether the overdraft charges levied in the past, under old terms and conditions, can also be challenged by the OFT.

How will the banks defend the validity of their past charges if they now have a new set of fees which they say are fairer and better?

It is worth remembering that tens of thousands of claims are currently in suspense in the county courts and at the Financial Ombudsman Service until the whole issue is resolved.

And billions of pounds of potential new claims for the refund of overdraft charges could emerge if the banks eventually lose their argument on the fairness of their old terms and conditions.

Yet in most cases, where the banks have submitted written defences to county court claims, they argued explicitly that their charges were a fair and accurate reflection of the real cost of bouncing a cheque, plus the cost of writing a letter to customers telling them about it.

That argument will be hard to sustain if those very same charges have now been slashed, under the guise of being more responsive to customers' needs.

Charging for accounts

Barclays' new fee structure does not mean that going into the red without permission now carries a relatively negligible cost.

Someone who does this once a month will now be charged £22 for using the new "personal reserve", whereas the cost might previously have been £30 or £35 a go, depending on whether the cheque was paid or bounced.

Someone who gets lots of cheques bounced in one day may also now be charged up to a maximum of £40 instead of £35.

But the underlying theme of the Barclays changes is not just to do with overdraft fees.

It is also about revamping the whole structure of its current accounts, by encouraging customers to opt for ones that carry a simple monthly fee.

Many banks have, in the past year or so, brought in such accounts with monthly fees, often touted as a luxury option, with frills such as insurance.

But Barclays now has an optional new current account, dubbed "current account plus", which offers a £300 interest-free overdraft for just £3 a month.

That would be cheaper to use than occasionally dipping into a "personal reserve".

Many commentators have said this is the way that UK banking would go if high overdraft fees were restricted - back to the days of charging customers for having an ordinary account.

It is happening right now.

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Barclays Bank is to slash customer charges for overdrafts, paving the way for a fierce battle between High Street banks for current account customers.
Britain's third largest bank said it would scrap its charging structure for unauthorised overdrafts with a flat fee of £8 per transaction - rather than present charges which can be as high as £35.

But the move is likely to call in question claims within the industry about the cost to banks of processing bounced payments.

The bank said it was able to slash the charges because of technological breakthroughs which have increased the amount of automated handling.

But campaigners have long claimed that fees as high as £35 are unfair and believe the true cost to banks of processing the payments could be as little as £2.50.

The issue of bank charges is currently the subject of a High Court battle after a judge said fees were subject to "unfair contract" rules in April in a case brought by the Office of Fair Trading.

Banks have since lodged an appeal over the ruling which paves the way for a further hearing to decide whether charges are unfair and, if so, what a fair charge should be.

Barclays also announced it would launch two new fee-charging accounts and scrap the interest rate paid on balances in credit, currently worth 2p per week to the average customer.

Its 11 million current account customers will also see an increase in the interest rate charged on authorised overdrafts by almost two per centage points - to almost 18 per cent.

The lower charges are part of a new overdraft service for customers that will also include the launch of "Personal Reserves" on August 18.

These buffer zones, typically of around £250, can be used as often as the customer needs without repeat charges.

But if a customer fails to pay off the additional balance within five working days, they will be liable to pay another £22 fee.

Mark Parsons, managing director of current accounts at Barclays said: "We have listened to our customers and acted on this feedback by completely revamping our unauthorised overdraft service, replacing it with the new Personal Reserve.

"Our customers wanted a simple, clear way of managing payments when they go beyond agreed limits."

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One of Britain's biggest high street banks has slashed its overdraft charges in a move which is set to spark a battle for current account customers among other major banks.

Barclays announced today that it will launch two new accounts that charge a flat fee of just £8 for each transaction once a customer goes beyond the agreed overdraft limit, compared with the current £35 fee.

It comes after high street banks lost the first stage of a High Court battle over the legality of hefty overdraft and other fees. The banks are said to be reviewing fees after the ruling, which they are appealing.

Customers opting out of having the buffer zone will see payments over an agreed limit bounced, but will still only have to pay the reduced £8 charge.

Barclays said that it had been able to reduce its charges as a result of breakthroughs in its handling systems, with a far greater automated service.

But it is likely to be seized upon by campaigners who have long claimed that fees of up to £35 are unfair and does not represent the actual cost to banks - which they believe could be as little as £2.50.

In April, the Office of Fair Trading won a High Court ruling over the issue, when a judge said fees were subject to "unfair contract" rules.

It paves the way for a further hearing to decide whether charges are unfair and, if so, what a fair charge should be. Banks have since lodged an appeal over the High Court ruling.

Barclays' £8 charge could lead to other banks scrambling to play catch up in an industry that faces being forced to lower fees.

It is part of a new overdraft service for customers that will also include the launch of "Personal Reserves" on August 18.

These buffer zone, typically of around £250, can be used as often as the customer needs without repeat charges.

But if a customer fails to pay off the additional balance within five working days, they will be liable to pay another £22 fee.

According to the bank, the system will "significantly reduce" charges and give customers certainty about when their payments will be met and when they will be bounced.

Crucially, current account users can opt out of having the buffer zone - and therefore not be liable to the £22 charge - but still only face £8 for bouncing a payment.

Mark Parsons, managing director of current accounts at Barclays said: "We have listened to our customers and acted on this feedback by completely revamping our unauthorised overdraft service, replacing it with the new Personal Reserve.

"Our customers wanted a simple, clear way of managing payments when they go beyond agreed limits."

He added: "Our new approach has been tested with consumers extensively over the last two years and we are confident that our products will promote account switching to Barclays."

The bank also announced that from June 1 it is to scrap credit interest on standard current accounts. Research found that customers do not value the 0.1 per cent payment - which works out about 2p a week to the typical account holder.

And from June 2, interest on overdrafts will go up from 15.6 per cent to 17.9 per cent.

Mr Parsons added: "The overall package of changes we are making for new and existing customers provides a simple, clear choice and improved value, marking a step change in current account banking in the UK."

The bank's 11 million current account customers will receive a letter in the coming weeks informing them of the changes

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Please note that the following article doesn't concern bank charges. However, I have decided to add it to the site, as it's important news regarding a long overdue shake up of the banking system, and will eventually be to everyones benefit.

The faster-payments system that will allow banking customers to move money between accounts in just two hours is set to be launched next week, although not all banks have signed up to the service.

It currently takes two days to carry out these transactions, but millions of customers will not be able to avail themselves of the system next week, as it will initially only cover 5% of internet and phone payments when it is launched on Tuesday.
Standing orders will be included in the mix from June 6, while the system will be expanded to include 50% of all personal account payments by August.

This will benefit up to half of the 27.5m people who use telephone or internet banking in the UK.

Business account customers will not be able to use the service until the end of the year, when all internet and phone payments should fall under the system. It will not cover cheques and is not needed for direct debits as these are already virtually instantaneous.

The seven institutions from which you will be able to send and receive payments from next week include Barclays, Citibank, Northern Bank, HSBC, Lloyds TSB, Yorkshire and Clydesdale Banks and Royal Bank of Scotland (which includes NatWest and Ulster Bank).

However you will only be able to transfer a maximum of £5 at first with Barclays, which will raise this limit to £100 by early June and £10,000 by July 16.

Customers of Alliance & Leicester, HBOS, Nationwide and Northern Rock will only be able to receive payments initially.

The Co-operative will begin receiving faster payments in July and Abbey will come on board by the end of the summer.

If you are caught for time and want to find out whether your account or that of a payee has signed up to the service, simply enter its sort code into the account checker provided by the Association of Payment Clearing Services (Apacs) at www.canipayfaster.co.uk.

Paul Smee, Apacs chief executive said: 'The final part of this enormously complex project has been to test the new system in a live environment. This week hundreds of penny payments have successfully been made between the participating banks.'

The faster payments system was due to be introduced last year but was delayed when IT testing took longer than expected.

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Bank customers hoping to reclaim billions of pounds in "unfair" bank charges could have to wait years to receive rebates after the banks lodged an appeal against a court ruling yesterday.

Last month, a judge ruled that bank charges for breaching overdraft limits were subject to regulation by the Office of Fair Trading under unfair contract rules.

But at a case management hearing yesterday, commercial judge Mr Justice Andrew Smith indicated he would give the banks leave to appeal against his earlier ruling which had opened the door for the OFT to challenge the controversial bank fees.

Consumers had hoped the earlier ruling would lead to a cap on the fees and allow them to reclaim excess charges paid over the past six years. However, the case will now go to the court of appeal, delaying any rebates.

The OFT has been investigating the charges for a year and yesterday was asked by the judge when it might conclude its work. After initially indicating that it had no idea when the investigation would be completed, the OFT indicated it was working to a July timetable.

In a statement, the OFT said it "recognises that this is an issue of major public interest.

"It is also a complex legal process with a number of steps. The OFT is committed to ensuring that the process moves forward as quickly as possible to resolution and is taking all necessary steps working together with the interested parties."

It said it aimed to be ready to talk to the banks in July about its preliminary views on whether the charges were fair. It would then identify what would be its next step.

According to the OFT, banks earn up to £3.5bn a year, or nearly £10m a day, from fees on unauthorised overdrafts. They charge up to £39 for each bounced payment, when the actual cost to the bank may be as little as £2.

This prompted the competition watchdog to launch its investigation of the charges. But the banks agreed to a test case after they faced thousands of claims from disgruntled account holders in the county courts.

The test case should determine whether the OFT regulates the bank charges, though this question is now the subject of the appeal by the banks. It should also decide whether the charges are fair, which is the subject of the investigation by the OFT.

Before the test case was announced last summer, more than 1m form letters were downloaded from websites by consumers hoping to claim back charges.

In some cases, customers were able to win back thousands of pounds from the banks, which refused to contest the claims in court. Banks are thought to have repaid about £500m so far.

The British Banker's Association, on behalf of the current account providers, noted yesterday that the court had adjourned until today. It said: "Once the precise terms of this permission are agreed tomorrow the banks will progress the appeal with expedition. A further statement will be issued at the conclusion of the hearing." The OFT also promised a further statement today

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As a High Court judge grants banks leave to appeal earlier ruling, Myra Butterworth looks at what they charge people for, and how we can avoid paying the fees

Bank customers seeking to reclaim unfair charges will have to wait at least another year before getting their money back after the latest twist in litigation this week.

A a High Court judge granted banks leave to appeal against his earlier ruling on the issue. The judge had previously decided that overdraft charges fall under the "unfair terms" in consumer contract legislation.

Which? chief executive, Peter Vicary-Smith, said: "This is a real kick in the teeth for consumers as it just drags out the whole process. It’ll be at least another year before people start to get their money back, during which time the banks will hit us with up to £3.5 billion in overdraft charges.

"The banks should do the right thing now, throw in the towel and start reimbursing the customers they’ve been overcharging all this time."

But customers do not have to wait until the final outcome of the test case to ensure that they get the best possible deal. Those who are fed up with paying expensive charges, or simply want to get the best rate on their current account, should switch to a different bank.

Research by statisticians Moneyfacts reveals how banks are already profiteering by charging customers more and paying savers less. Banks have cut the interest rates they offer those in credit on their current accounts by up to 1.75 per cent while some overdraft rates have been put up.

Michelle Slade, analyst at statisticians Moneyfacts, said: "A lot of the biggest moves have been by the major high street lenders, meaning a large proportion of the population is going to be hit at a time when they can least afford it."

For example, Nationwide Building Society has announced that it is increasing the rate on authorized overdrafts for FlexAccount customers from 9.9 per cent to 12.9 per cent, as of the beginning of June.

At the same time, the rates on many savings accounts have dropped in the last month. Lloyds TSB is just one of the banks that has cut rates on its savings accounts recently – and up to as much as 0.5 per cent on its internet savings account.

Miss Slade said: "Banks are not going to want to lose money and these recent moves show how they are trying to pre-empt the High Court judgment by putting up charges."

Before switching your account, examine the different fees that banks apply as this will help determine which the best deal is for you.

As our table of what banks charge shows, customers at Natwest can end up paying a whopping 29.69 per cent for using an unauthorized overdraft, so this is an account to avoid if you regularly breach your overdraft limit.

Charges to watch out for include "unpaid item fees", which can be as high as £38 if your bank bounces payments such as direct debits, and "paid referral fees" of up to £30, charged, for example, when a bank honours a cheque even though there is not enough money in your account.

Sally Collins, senior investment adviser of independent financial adviser Bestinvest, said: "Bank charges can be a bit of a minefield so it is important to consider what you want from your bank account before finding one that suits you.

"If you are likely to end each month in your overdraft you obviously need to be looking at overdraft fees. Conversely, the cash rich may seek to gain better interest rates by accessing fixed-term bonds or Isas – although the risk here is that you may need to withdraw cash early and incur exit penalties."

She added: "Internet banks tend to have higher interest rates but may charge more if you want paperwork sent out and can be less likely to have a high street presence.

"The credit crisis is showing its effects across the banking industry and the regulators are putting pressure on banks to improve balance sheets after losses. Although it is unlikely this will have a direct effect on explicit bank charges it may impact the interest rates."

Since banks can argue that it costs money to run a current account, if penalty charges are forced down, it could mark the end of free banking, with rising fees for other services. In the meantime, banks claim they are doing all they can to help customers avoid paying extra charges.

Lloyds TSB said the majority of customers do not pay overdraft charges, but added that those customers who find it difficult to keep tabs on their account can opt to register for a "limit alert" text message service, which gives them advance warning if they are about to go overdrawn or are getting near their limit.

In addition, all customers receive a "grace period" during which they can top up their account and avoid paying any charges.

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A High Court hearing to decide the fairness of bank overdraft charges will now start before the end of the year.

The Office of Fair Trading and eight banks agreed the timetable under pressure from a High Court judge.

Earlier, Mr Justice Andrew Smith allowed the banks to appeal against his first ruling last month that the OFT has jurisdiction over the charges.

If that appeal is successful, then any separate decision on fairness would be made redundant.

Wait for customers

Last month's ruling by Mr Justice Smith was a victory for the OFT, which has been seeking legal confirmation that it can rule if bank charges are fair or not.

Consumers are still some way away from getting their money back

Chris Warner, Which? lawyer

The banks have been keen to oppose this to protect the estimated £3.5bn a year of income they generate from charging customers who go overdrawn without permission.

Under pressure from hundreds of thousands of customers suing them for the return of their overdraft charges in the county courts, banks agreed to a High Court test case in two stages.

The first was on the authority of the OFT under consumer contract regulations. The second will be on the fairness of the charges themselves, which the OFT has been investigating since April 2007.

"The judge has indicated he wants the OFT's investigation to be wrapped up quickly, and that is a very positive move for consumers waiting in the wings," said Chris Warner, a lawyer for the consumers' association Which?

"But the banks are appealing and it will be some time before a judgement is issued in that hearing and so consumers are still some way away from getting their money back."

Suggested dates

The banks' appeal is likely to be heard this autumn, but if either side then takes the issue to the House of Lords, the OFT's jurisdiction in the matter is unlikely to be settled until next year.

Since the two sides first agreed this long process of litigation last July, tens of thousands of claims for the refund of bank charges have been frozen in the county courts.

Earlier in the day, Mr Justice Smith expressed his discontent at the OFT's initial statement that it had no idea when its investigation would be completed.

"While the investigation is going on, we are asking the county courts to keep the litigation on hold," he said.

"How long are they expected to wait?"

Later, however, the OFT said it would share its initial findings with the banks in mid- to late July.

The regulator and the banks agreed that if they could not agree on a fair level of charges, the issue would go to the High Court before Christmas for a ruling.

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