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27 July 2009

FSA Website suggests that bank charges scandal will not be resolved this year

The Financial Services Authority (FSA) should be protecting consumers from the excesses of the financial services industry. When it comes to Britain's High Street banks, it is clear that the FSA has no intention of protecting consumers; on the contrary, it has bent over backwards to protect the banks from consumers in the case of penalty bank charges.

When the test case was launched between the OFT and 8 of Britain's banks back in July 2007, the FSA immediately jumped in and granted the banks a waiver so that did not have to consider any complaint from consumers on this issue. The waiver has been repeatedly extended and, two years on, it has been extended again.

Meanwhile, in the Courts system, the test case has reached the House of Lords and, hopefully, in the autumn, the Lords will deliver their verdict which will confirm that these bank charges are "subject to the test of fairness". Most people would think that, at that point, the game will be up for the banks and that they will have to repay the excessive charges that they have extorted from their customers for years.

However, that will almost certainly not be the case. Deciding that the charges are subject to the test of fairness does not automatically mean that the charges have been unfair, merely that someone now has to decide whether or not they actually are unfair. In other words, somebody has to decide what would be a fair level of charge. The OFT should have been taking a lead in this matter. They have been looking at this issue for nearly 4 years. The OFT could have come out with a figure by now and stated clearly that, the moment the House of Lords confirmed that the charges should be assessed for fairness, then this is the figure that should be applied.

But the OFT has never come up with a figure of what should be fair. In fact, the OFT has gone so quiet on the issue of bank charges, one would be tempted to think that they had forgotten that this project had not been completed.

What will probably happen is that once the House of Lords makes its ruling, the OFT will then say that they now need several months to sort out with the banks what would be a fair charge. Don't be surprised if the FSA at that point extend the waiver again; and the Courts will probably extend the stay on the claims in the Court system.

Why should these public bodies want to delay the resolution of this long-running problem? The answer would seem obvious. Cutting the charges imposed by banks will impact on banks' profits significantly and having to repay their customers in respect of historical excessive charges will cost the banks billions of pounds. Half of the UK banking system is essentially owned by the UK taxpayer. Money paid by the banks to their customers will have to come from the UK taxpayer. This decision will have to be endorsed by the UK Treasury. When the nation's public finances are in the worst state that they have ever been in, why would a government minister agree to this, when the alternative would be to leave the problem in his pending tray for the the new minister that will take over after the upcoming general election.

For an explanation as to how the FSA will justify the delay in sorting this out, see their website at FSA bank charges. This shows how they consider the issue to be a "two stage" process.

So, with apologies to all those waiting for refunds of bank charges, I suspect that you will have to wait until after the general election.

Published and promoted by Bob Egerton, TR2 4RS