I completely agree. The bank charge issue left me feeling confused also. The banks should be pointing out the fact that a washing machine or a car or a TV costs about half or less to make than it costs to buy. What is wrong with these people?

Derek S, Dundee,

The argument re bank charges is well put and pursuasive. But...

"or pharmaceutical companies that behave as if they have something to be ashamed of (they don’t – their business is based on curing the sick)". No, their business is in making profits. The 'curing the sick' is largely co-incidental.

British Petroleum, on the other hand, knows that oil supplies are limited, and has an obligation to find alternatives if it wishes to remain in business.

Brian Vallance, LEFKIMMI, Greece

Fine, good point. Now let's go to the other extreme.

Went on holiday last month. No way of checking my available balance. Turns out I overdrew by £8. My bank has just charged me £39 for making the payment without funds, £25 more for being overdrawn, another £25 for yet owing £8 after 5 days and, to add salt to injury, interest on the £8+£39+£25+£25. Bottomline, it was indeed my fault to overdraw by £8, and I have been charged nearly £100 for that. Will the writer care to calculate the interest charged on my loan? Is the writer suggesting that, every time he forgets to notify its bank of a change of domicile, for instance, the bank is perfectly entitled to charge him £100, or £200, or, for that matter, £1,000? Are there no limits to the principle of freedom of contract when contracts are not individually negotiated?

luis, london, UK

My wife recently went up to £104 excess overdrawn over a period of 14 days. The bank are charging her £75 in fees. She is Russian and did not understand "CR" and "DR" on her mini-statements. I would be happy for the bank to have shown some backbone, sent her a stiff letter and refused further transactions. Instead they seem to have seen it simply as a good opportunity to fleece her.

Dr. Keith Anderson, Durham, England

Good article and a sensible argument.

However, the banks do themselves no favours with the steep decline in customer service in recent years, and the increasing difficulty of addressing quite reasonable concerns. I'm sure that it engenders in some people a feeling that banks don't care about them as customers ("there's more where you came from matey") and are happy to put one over on you - thereafter even legitimate practices are seen as sharp.

Homer, London,

Take this example...

1. Bank customer has an agreed overdraft limit of £50
2. Balance of account stands at £45DR
3. Service provider attempts Direct Debit of £12.50
4. The bank does not allow the transaction owing to lack of funds
5. Bank applies a charge of £28 for failed direct debit
6. Balance of account is now £73DR
7. Bank applies additional fee of £35 for exceeding overdraft limit
8. Balance of account is now £108DR

In this example the bank customer still needs to pay the £12.50 for their service provider and £63 of bank charges

This is certainly not fair and is also not untypical, the above series of events should simply stop at step 4

John-Paul, Preston, Lancashire

Thats alll fine and good and I agree with you on the bank chagres exept that there have been situations where a direct debit was allowed to go out by the bank even though funds wern't available, and then they charge for the privelage - why not just stop the transaction or direct debit when you reach your limit? I agree that we shouldn't be taking more than allowed, but If there is no money in the bank then no money should be able to go out and it appears to me that the banks deliberately allow the transaction so that they can apply a charge and thus make money.

Chris Hobden, Beighton,

No-one is arguing that the banks are wrong to charge customers who go overdrawn. The case against the banks is that the charges are disproportionate - that it is wrong to charge someone £35 when they've gone overdrawn by £2.37. That is what people are objecting to.

Also, why should there be more money for me to take out of my account than I've agreed with my bank in the first place? It often seems to me that the banks make it very easy for you to go overdrawn in order to sting you with the charges subsequently.

Toby Donovan, London, UK

Stephen, I think you miss the point regarding the bank charges fiasco. There is no argument that the banks should penalise customers for entering into an unauthorised overdraft, the question is the whether the severity of the punishment meted out by the Banks, is in any way proportionate to the "crime". A not uncommon situation can arise where a customer goes overdrawn by less than £10 on an unauthorised basis for a couple of days. The customer realises that they are overdrawn and credits the account with £20 two days later. In the meantime, the bank imposes a £35 overdraft fee. As a result the customer remains in an unauthorised overdraft position and they are quickly swept down a bank penalty spiral which can very quickly get out of hand, especially if the customer is on a low fixed income. With regard to the threat of increased banking fees, as an advocate of the free market, you will be well aware that the banks will be loath to rapidly increase fees for current accounts if any of their rivals down the High Street are proffering "free" banking. I assume you are not suggesting that the banks would operate as a cartel.

Gary, Chester,

I don't want to appear anti-capitalist so I use my words carefully.

a) The banks are only allowed to charge the costs of dealing with going over the limit, not making a profit off of it. Hence what they are doing is illegal (it may be perfectly fair but in that case the moaning should be directed at Parliament to change the law so that banks can profit off of this).

b) They may make a lot of money off of overdraft charges but they also make a lot of money off of a lot of other things. This suggestion that they would end free banking is nonsense, its just blackmail - ending these illegal actions would just mean they don't manage record profits next year but merely have average profits.

Fred, London, UK

Stephen Pollard is rather missing the point - it is not that one objects to a charge for exceeding an agreed overdraft limit, it is the business of the bank charging £35 for bouncing a direct debit which is so annoying, especially as it only costs them about a pound because it is all done automatically, by computer. It is these unfair charges that customers are quite rightly re-claiming.

Andrew Marjoribanks, Greenock,

Firstly, the banks are not obliged to allow people to exceed their overdrafts; they have an interest in allowing it to happen, and therefore do so.

Secondly, the banks are charging far more than the costs they incur in lending the additional money. This is a violation of common law, and should therefore stop, regardless of whether these illegal bank charges were subsidising free banking.

Thirdly, glossing your outrage as being motivated by "most of us pay[ing] a lot more" is highly unconvincing, not to mention factually dubious. You are retailing the banks' PR line, which is exactly what I would expect an overpaid, opera-attending faux man of the people to do -- "most of us" has nothing to do with it.

Stuart A, London, United Kingdom

You're not the only person who thinks that. I was saying something similar back in May:
http://jonathan.rawle.org/2007/05/15/save-our-bank-charges/

The worst thing is, the many of us who wouldn't dream of going overdrawn are the ones who will lose out if banks move to monthly account fees.

If the penalty charges are currently illegal, perhaps the law should be changed so that they are not (maybe with the safeguard that the bank does have to make an effort to contact the customer concerned before applying subsequent charges).

Jonathan Rawle, Didcot, Oxfordshire, UK

"That'll be £15.53 pence please,” says the bored looking teenager, at your local Tesco’s.

As you pull out your wallet, you suddenly realise you only have £12.79p on your person. Embarrassed, you're forced to tell the checkout girl.

"I'll just get the manager." she smiles.

Duly, the store manager appears looking concerned.

Just as you are trying to explain you have an extra fiver in the car and you don’t mind running to get it, the manager presents you with a letter informing you that your shopping is being withdrawn and you’re to be charged a £40 withdrawal fee and additional £28 restacking charge.

If that sounds unfair, or even unlikely, tell me why it should happen when I'm short of the money to pay a direct debit? By all means withhold the money but to charge £68 to simply inform me that it's not been paid is ridiculous, and any idiot should be able to see that.

Gordon Mackay, Bath,

The point is not that banks were charging people for being overdrawn without permission; it is that their charges were grossly disproportionate and, as events have proved, unjustifiable. Halifax, for instance, was charging £39 to send people a computer-generated letter, often causing more financial stress to already stressed people. Or perhaps you think that's being "financially responsible".

DavidV, Croydon, UK

Remember that the customer's money and the bank's money are separate. When someone exceeds their overdraft, they are taking other people's money without asking and without having ability to, or even the intention of repaying.
If bank charges are seriously reduced, then there is no disincentive to this dishonest and feckless behaviour. A higher rate would need to be significantly higher than the existing credit card rate to be effective: in other words downright usurious.
The people who push their overdraft to the maximum will push any other limit to the maximum and beyond, and not worry about the rate. The long-term threat is not only the end of free current accounts, but also the real threat of banks collapsing.
Stephen Pollard is quite right about the cowardice of capitalist organisations. Richard's Law states that the moral courage of an organisation is in inverse proportion to its size. The OFT is a relatively small organistion compared to a bank.

Richard , Dunstable,

yes but limit works both ways Why do banks allow customers to spend over their limit?I NDEED IT IS KNOWN TO ENCOURAGE IT
Answer is clear they want you do it so they can charge penalties

E.Michaelson, london, england

Sorry but I have to agree with Stephen here. It doesn't matter how much the charges are or if they are unjust. We all should know that charges apply if you overstep your agreed limit. I have never exceeded mine and therefore I have never been charged i never then have to moan about the charges. The bank will make their money somewhere be it through charging those who take more than they should or they charge me for my account.

Michael, Poole, Dorset,

surely the best route would be a 'just' route. Those who agreed terms for an overdraft and then exceeded the provisions they had agreed should pay the banks reasonable expenses and a penalty for dealing outwith the terms.
equally, those who stray into an overdraft or unauthorised loan of £5 because by error they have not received funds which they anticipated would be cleared should not be charged an excess and unreasonable penalty, but should reimburse the bank for the costs incurred.

Concerning the issue of losing 'free' accounts, surely each person should pay the cost of the services provided to them by some reasonably visible means, and the cost of providing those services should not be subsidised by the less well-off in favour of the better off.

I feel that banks should set out a range of charges for basic services that are demonstrably fair and include a reasonable profit, and should not seek to penalised those over whom they arguably have a greater degree of control.

Robert Dafforn, Hartley Wintney,

Stephen - the banks will be paying the money back not because the borrowers had the right to borrow more than they were allowed (they were not) but because the charges were interpreted as penalties.

Under English law a penalty clause is unenforceable. Any clause seeking to redress damage suffered must be carefully drafted to avoid being a penalty and must reflect an accurate preestimation of the loss suffered by the injured party. If the banks had imposed charges exactly equal to the cost of bouncing a cheque (thereby pointing out the offence without condoning it, but avoiding the imposition of a penalty) it's unlikely anyone would ever have made a fuss.

In the case of bank penalty charges, the losses suffered by the banks tend to be totally out of proportion with the penalties imposed on the offending borrowers. Therefore the penalties are being repaid.

Interesting point, perhaps not the best of examples to show up capitalist weakness!

Freddie, London,

I think it's just down to bad management and vindictive policies.
When people are struggling, the last thing they need is a £25 fine for exceeding their overdraft by £3. It's especially hard for some when they are required to use direct debits. You can think you've got enough money and then find out you've miscalculated.

The sensible solution is for banks to have two interest rates; a lower one for agreed overdrafts and a higher one for unauthorised. This would at least be a progressive penalty - and would prevent the "well I might as well be hung for a sheep as a lamb" mentality.

Kevin Millican, Lowestoft, England

The banks are the ones with the big computers on worldwide networks and the information about exactly how much money or debt a given person actually has. Nobody is forcing them to pay out more than a customer is entitled to - they do it because they see the glint of further profits. Anybody can make a mistake or miscalculate what they can afford, so it should be the banks' responsibility to make sure that the customer knows what he is getting into. The overdraft limit should be exactly that: a line that is not crossed until the matter has been clarified.

Rosemary Roberts, Germany,

The issue with the banks is unfortunately rather complicated. Banks are allowed to charge fees for overdrafts. The problem is that in English law no contract may include penalties, meaning obligations to pay money greater than the costs involved. As such, from another perspective your analogy does not hold: you presuppose agreement, whereas in a legal sense there can be no agreement to pay penalty fees. This approach reflects the idea that prices (the current fees being, in effect, the price of creating a loan) are based in some way around the market. However, the banking market seems to be somewhat less than competitive on this issue (see the fact that all the banks are facing the same problem). This does not mean that morally there is anything wrong with penalty fees, but oversimplification does no good at all.

JS, Cambridge,

I think you miss the point. The real problem is when people, usually living at the periphery of their financial ability, go overdrawn by say £20 and find they are whacked with a £50 charge. Not only is this absurdly disproportionate but also frequently cumulative. Difficult positions get worse. Unfortunately since we are now virtualy a cashless society, at least as far as wages are concerned, such people have to have bank accounts. Their plight is exacerbated by the almost universal practice of paying salaries a month in arrears. It does not take a mathematical brain to see how problems can accumulate, exacerbated by regular fines from banks. While customers with large regular positive balances are clearly subsiding such people it has not been evident that banks are prepared to pay a sensible rate of interest on current accounts either. There is a difference between a fair rate of return and an unfair one and the banks are in danger of falling into the latter camp. Rethink required.

Martin Paling, London, UK

There appears to be no distincion made between 'fair' and 'unfair' levies on breaches of overdraft limits, and also no mention made of breaches that occur due to banks making errors.

By the logic of this article any charge set by the bank would be fair. Even having a limb chopped off. Surely that can't be his intention?

liberalhammer, Borehamwood, Herts

Well said Stephen. I'm just amazed that no-one else seems to have raised the same points more vocally. Not only is it morally questionable on the grounds you raise above but, when you open an account the charges are laid out in front of you in black and white! And from when you sign up you have 10 days or so tro change your mind anyway.

Also, as long as I've had an account I'ev known that the charges are high for going overdrawn, as have most or all of my friends;
maybe the ill-educated may not have done and, at the end of the day, those people are the least liekly to claim and get any money back. And now they're liekly to pay more for their accounts too.

chris, northampton,