Consumers to benefit from overdraft opt-out

| March 16, 2010 | 0 Comments

Consumer watchdog, the Office of Fair Trading (OFT), has today revealed UK banks may soon be offering customers the ability to opt out of unarranged overdraft facilities.

Should the procedure be put in place, it would mean consumers would avoid hefty fees if they slipped into the red.

The announcement comes as the OFT took legal action against banks regarding unauthorised overdraft charges after it was discovered that banks and building societies were charging over £35 for a bounced cheque, standing order or direct debit.

However, campaigners claimed the actual cost incurred by the financial institutions could be as low as £2.

However, at the end of last year, the Supreme Court unexpectedly ruled in favour of the banks over the fairness of the charges.

At the time, the OFT said it would not take further legal action against banks but would instead investigate the issues intensively with banks, consumer groups and other organisations.

Three months of negotiations has meant major high street banks have already altered the structure of the fees they charge people who slip into the red.

One of the UK’s largest banks, HSBC, will next month introduce a new bank account to meet the OFT’s requirements.

HSBC said the account, which will be known as HSBC Bank Account Pay Monthly, “features a strict overdraft limit that cannot be exceeded unless the bank has formally agreed a higher limit beforehand.”

Overdraft charges are a huge source of income for banks and in 2006 generated £2.6 billion for them.

In related news, Virgin Money, which is set to launch as a retail bank later this year, recently announced it will charge a monthly fee for current account customers.

However, the company said the fees will be low and will replace high overdraft charges.

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