Shockingly Bad Value

The OFT have issued a scathing report about the business practices of various cash for gold companies, that buy people's gold jewelry at below market price and smelt it down.

CashMyGold, Cash4Gold and Postal Gold have all agreed to change their business practices as the OFT was concerned that people were being "locked into" accepting offers for their gold.

The firms state that customers can reject their cash offer. However, failure to contact the firm in the short time frame offered was taken as consent.

People who are desperate enough to use these firms are being given a very poor deal, as the prices that they can obtain from even pawn brokers are higher than offered by the cash for gold firms.

Which? found that these firms offered an average of 6% of the retail price of the gold, compared with an average of 25% offered by pawnbrokers and high street jewellers.

As Which? noted, this is "shockingly bad value"; it quite correctly warned people not to use them.

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Banks Win

One way or the other the banks were going to win the case for charging "excess" fees for overdrafts.

In the event that they had lost their appeal at the Supreme Court, they most certainly would have started charging for all bank accounts (irrespective of whether they were in credit or not).

As it is, millions of bank customers hoping to be refunded overdraft charges have been dealt a major blow by a Supreme Court judgement.

The court has overturned earlier court rulings that allowed the Office of Fair Trading to investigate the fairness of charges for unauthorised overdrafts.

Notwithstanding this result, I guarantee that banks will start to introduce account charges (one way or another).

I would make one other observation, the banks claim that their charges are for the risk and effort taken by them wrt supplying an unauthorised overdraft.

Fair enough!

However, has not the British taxpayer provided the banks with billions in the form of an unauthorised overdraft in order to bailout the banks as a result of their gross mismanagement of their businesses?

Therefore does not the British taxpayer have the right to levy charges (high ones) against the banks?

What goes around comes around!

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A Slap On The Wrists

The Office of Fair Trading (OFT), having spent four years investigating public sector construction tender rigging, have fined the construction industry a trifling £129.5M.

This fine represents no more that 2% of each business's turnover.

Seemingly the OFT was worried that a larger fine would push the construction industry further into recession.

Maybe so, but what about the millions of pounds of public money that has been wasted because of this tender rigging?

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RBS Cuts Charges

RBS (the taxpayer funded bank) and its NatWest subsidiary have, admittedly by implication, admitted what everyone knew all along, namely that bank charges for bounced cheques etc are simple profiteering.

RBS and Natwest have announced that they are cutting the fees they charge customers who go overdrawn without agreement, or exceed their overdraft limit.

As from 1 October, charges for a "bounced" cheque, direct debit or standing order will fall to £5, down from £38.

Other charges such as maintenance charges for overdrawn accounts and the paid referral fee will also be reduced.

Clearly, were the administration costs to the banks really that high then these cuts would never have been made.

Currently eight lenders are challenging the right of the Office of Fair Trading to decide if overdraft charges are fair or not, in the face of a million claims by hapless bank customers for the return of their unauthorised overdraft charges.

As to whether other banks follow suit remains to be seen.

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How Embarrassing

In a supreme twist of irony, the Office of Fair Trading (OFT), the government body set up to warn consumers against unfair trading practices and fraud, has itself become victim to a £250K internal accounting fraud.

£97K went awol in 2007/08, whilst the remaining £153K went missing in 2008/09.

It seems, according to the OFT accounts, the fraud was made possible "by a control weakness in the Accounts Payable process".

The case is now subject to legal proceedings.

As an experienced forensic investigator, and internal auditor, it never ceases to amaze me how many times the purchasing function is overlooked when it come to the risk of fraud.

Kick backs from suppliers, and inflated purchase invoices are one of the many myriad of ways in which a fraudster can skim the system.

I am surprised that the internal audit department of the OFT (assuming there is one) had not identified the systems weakness.

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FSA Fails Again

The Financial Services Authority (FSA) has once again demonstrated to all and sundry that its role is to protect its paymasters in the financial services industry, rather than champion an efficient, open, transparent and honest financial services industry for hapless consumers and investors.

The FSA has announced that it is extending the waiver that allows banks not to pay out on claims for compensation for overcharging on unauthorised borrowing.

The waiver was introduced in July 2007, when the Office of Fair Trading (OFT) began a court action to prove that high charges for unauthorised borrowing are unfair. It was due to expire next Monday. However, the court case is still ongoing and the FSA has said that it will allow banks to put claims on hold for a further six months.

While the waiver is in place the Financial Ombudsman Service will not proceed with complaints, and cases in the county courts have also been put on hold.

Another nail in the coffin of the FSA's reputation.

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The Bankers Strike Back

The major high street banks, never fearful of damaging their already trashed reputations, will go to the Court of Appeal today in a bid to overturn the High Court ruling that unauthorised overdraft charges are unlawful.

The banks lodging the appeal include; Abbey, Barclays, Clydesdale, HBOS, HSBC, Lloyds TSB, Nationwide and the Royal Bank of Scotland.

Whatever the outcome, not expected to be decided for quite some time, the banks will ensure that they make money out of their customers one way or another. In the event they lose the appeal, they will simply abolish free current accounts.

It's as simple as that!

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There's Something Wrong With Our Bloody Banks

Admiral Beatty remarked ruefully at the Battle of Jutland, as he watched 33% of his fleet blow up:

"There's something wrong with our bloody ships"

Today, the same can be said of our banks.

The Northern Rock debacle of 2007 was but a precursor to serious problems ahead for the banking industry in Britain that are manifesting themselves in 2008.

Leading the pack is Bradford & Bigley, whose share price has all but collapsed in the wake of terrible results, the resignation of the CEO and a botched rights issue.

The Times reports that the pricing of the original rights issue was based on March's accounts, for reasons unclear the bank chose not to (or was not able to) use the April figures in the original calculation. Once those were in the directors' hands the reality of the bank's parlous position hit home. So serious was it that the underwriters pointed a gun to the board, and threatened to dump the shares if they were saddled with them. Hence the board was forced to go cap in hand to TPG, and offer up 23% of the company.

Suffice to say the shareholders of B&B are "pissed off", to out it mildly.

To add the the woes of the banking industry, the Office of Fair Trading conducted a series of dawn raids at offices of Barclays and Royal Bank of Scotland (RBS) yesterday, as part of an investigation into price-fixing on loans to lawyers and accountancy firms.

The investigation and raids followed a voluntary approach to the OFT by Barclays, amid concerns that staff in its professional services banking group "had been approached from outside ... in an inappropriate manner".

There's something wrong with our bloody banks!

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Banks To Appeal

Eight leading street banks, including Barclays, HSBC and Royal Bank of Scotland, have sought permission to appeal against last month's ruling which gave the Office of Fair Trading (OFT) legal jurisdiction to determine whether bank charges are unfair.

If permission is granted bank customers, who have submitted claims for "rip off" fees, may have to wait years to receive their compensation.

Needless to say, there have been accusations that the banks are using this appeal to delay repaying customers.

Phil Jones of Which?, is quoted in The Times:

"The banks should stop stringing this out. The charges are seen as unfair by consumers so they should do the decent thing and pay compensation to those who have made a claim and reduce the fees to a fair level."

Whatever the outcome, one thing is for certain, the banks will find other ways to charge their customers. The most likely change will be an introduction of charges on all current accounts, whether they are in credit or not.

Banks are not charities!

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Banks Raise Fees

As I predicted, the banks will not accept the possibility of a cap to their overdraft charges.

As such they are raising the the monthly fees on accounts, by up to 20%, before the ruling by the Office of Fair Trading (OFT) that could cap overdraft charges.

The Times estimates that approximately 7 million customers will be adversely affected by this move.

Royal Bank of Scotland, NatWest and Lloyds TSB will all raise their fees on the "packaged" accounts (ie ones that offer "extras" such as insurance).

Needless to say, next in line will be the free current accounts currently offered by the banks.

As I have repeated, time and time again on this site, banks are not charitable institutions. Block their revenue stream in one direction, and they will find a way around that blockage.

However, quite why people sign up to the "packaged" accounts is a mystery to me; they offer no tangible value for money, most certainly not after this round of price increases.

Dump them!

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A Pyrrhic Victory!

Britain's banks lost their battle in the High Court yesterday over unauthorised overdraft charges.

Mr Justice Andrew Smith ruled in favour of the OFT, stating that it can apply consumer contract regulations to decide if bank overdraft charges are fair or not.

In summing up, Judge Smith said:

"I reject the banks' contention that the Relevant Terms (the bank terms being challenged by the OFT) are exempt from assessment as to fairness under the 1999 Regulations.

This does not mean that the Relevant Terms are necessarily to be regarded as unfair or that they are not binding on consumers under the Regulations.

Those are not questions for me to decide in this judgment."

The OFT can now decide if the charges are unfair and, if so, what a fair fee should be.

However, the banks will undoubtedly appeal.

Those who expect to see a compensation cheque dropping through their door, in the near future, had better not hold their breath.

The rest of us, who did not slip into unauthorised overdrafts, can expect the banks to introduce charges on our accounts in the future.

A Pyrrhic victory!

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Banks Face Defeat

In a rare piece of good news for the hard pressed indebted public, today the High Court will hand down judgement on whether or not the Office of Fair Trading (OFT) can rule that bank charges are unfair; it is expected that the ruling will go against the banks.

If the OFT wins, it is then expected to decide that bank charges are too high.

However, even if the OFT does win and make that call, the banks will find other ways to charge their long suffering customers. Most likely the banks will introduce a charge for all account holders.

In the event that the court decides that some terms and conditions are subject to fairness assessment, while others are not, there will have to be further hearings to decide the exact level of charges.

Suffice to say, whatever the outcome, the brand image of banks and other financial institutions is at an all time low.

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Egg To Be Grilled

Egg and its owner Citigroup Inc are facing a possible investigation over allegations that Egg cancelled credit cards because holders consistently paid up in time.

Last month, Egg said that it was going cancel the cards of around 7% of its customers. Egg claimed that the 161,000 cardholders affected had a "higher than acceptable risk profile".

However, many of those on the hit list made vocal complaints to their MPs and the media pointing out that they had good credit records, and that they were paying off the Egg cards on time.

Following this furore, the Financial Services Authority (FSA) has been forced to get off its backside and has referred Nigel Griffiths' (an MP) complaint about the issue to the Office of Fair Trading (OFT).

Mr Griffiths said that he was "very pleased" about the FSA's action. Doubtless Egg are not so pleased.

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High Noon

Today marks high noon for the banks, as the the much vaunted court case begins that will determine the legality and fate of bank charges for unauthorised overdrafts.

The Office of Fair Trading (OFT) is seeking to prove that bank charges fall under the remit of consumer contracts regulations, which state that "penalty fees" must be proportionate to their cost. The banks claim that the charges, of £30 for bouncing a cheque or exceeding an overdraft limit, are not punitive and so do not fall under the terms of the act.

In the event that the OFT wins, it will begin a second case aiming to prove that fees levied on customers are too high because they exceed costs of £4 a transaction.

If the banks win, they will continue charging customers with impunity.

However, in a perverse twist, whatever the outcome of the case customers can still claim back late payment fees on credit cards of more than £12.

The banks going to court today are Abbey National, Barclays, Clydesdale, HBOS, HSBC, Lloyds TSB, Royal Bank of Scotland Group and the Nationwide Building Society. They have every reason to fight, as they make around £3.5BN per annum from these charges and stand to repay consumers £5BN if they lose.

However, whatever the outcome, you can be assured that the hapless consumer will be charged one way or another by the banks.

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Credit Card Charges

Which? has discovered a game easier than shooting pigs in a barrel, that of criticising the charges made by credit card companies on their hapless customers.

Which? state that since the Office of Fair Trading (OFT) ordered a cut in default fees to £12 last year, "ingenious methods" had been used to recoup the income.

Needless to say the banking industry has denied that is is acting unfairly, and claims that different fees were inevitable after the OFT ruling.

True enough, if they want to maintain their very high levels of profits.

Which? highlighted a number of money making charges levied by the card companies, including:

-Low usage fees
-Raised interest rates for withdrawing cash
-Annual fees for having a card
-Fees for using cards abroad
-Shorter interest free periods

Martyn Hocking, editor of Which? Money, said:

"Credit card providers seem to be resorting to a raft of ingenious methods to recoup lost revenue following the OFT crackdown on penalty fees."

Sandra Quinn, of the UK payments association Apacs, retorted:

"We always said that charges would change as a result of the OFT ruling.

We have been much more upfront about how charges are applied - every statement now has a summary box listing charges and key information about charging."

The latter part about being "more upfront" is particularly amusing, as it implies that credit card companies tried to hide their fees before!

Why would they do that then?

The credit card industry is also in trouble in respect of its many and varied methods for calculating the annual rate of interest (APR). Which? claim that there are at least 12 different methods in use for calculating an APR.

Following a complaint from Which? in April, the OFT said it would investigate the issue.

As I have noted before, banks are not charities. They are in business to make money, when one avenue for making money is closed they will find another. They treat their customers in this way because they know that they can get away with it, and know that many of their customers are so deeply in debt that they think that they need a credit card just to keep their heads above water.

In order to avoid these charges:

1 Pay off your credit card in full each month

2 Dump those cards that have an annual fee or low usage fee

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Get Out of Jail Card

Congratulations to the Financial services Authority (FSA) for showing its true colours the other day, when it came down firmly in favour of the banks rather than the public in the ongoing row over excess bank charges.

The FSA has ruled that banks will not have to make any more refunds to disgruntled customers, re excess charges, until the court case initiated by the Office of Fair Trading (OFT) is heard next year.

The OFT is taking high street banks to court over the excess bank charges.

Commercial Court judge Mr Justice David Steel has ruled that the trial will take place on a date to be agreed, between January and the end of February 2008.

It is estimated that bank customers have been stung with over £1BN in overdraft charges so far this year.

Well done the FSA for the giving the banks a free "get out of jail card".

Cab anyone remind me as to whom the FSA is meant to work for again?

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RBS Invents a New Charge

Congratulations to the Royal Bank of Scotland (RBS) for being so creative when it comes to inventing new ways to make money out of their customers. Hot on the heels of the announcement by the OFT that they would be investigating unfair bank charges on overdrafts, RBS foisted a new charge on customers who don't inform it of a change of address in a timely manner.

RBS will impose a £12 penalty charge on customers who fail to notify it of a change of address, after two statements have been sent to the customer's old address.

Needless to say its customers are less than impressed. However RBS remains unrepentant.

Quote:

"It is in the interest of customers to ensure the contacts details we hold for them are correct. We give clear instruction on each monthly statement on how to contact us to update these details."

Richard Mason, head of credit cards at the price comparison analyst Moneysupermarket, said:

"I've never come across this kind of charge before. But the OFT has cut credit card lenders' profits and that has made other charges inevitable."

Michelle Slade, an analyst at the personal finance consultancy Moneyfacts, said that credit card companies were finding new ways to increase revenue.

In April seven credit card providers, including American Express, Morgan Stanley and MBNA, have raised their interest rates. Other lenders have introduced new fees payable by customers who rarely use their cards, or cut the number of days following a credit card transaction after which interest becomes payable on the spending.

There are also new classifications of what constitutes a cash withdrawal; eg spending on internet gambling accounts is now regarded as a cash withdrawal, and charged at higher rates.

As I noted yesterday, banks are not charities. Squeeze their profits in one direction, and they will find another way to make money. The customer is a cash cow, there to be milked dry.

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The End of Free Banking

The Office of Fair Trading (OFT) last week announced that it would launch a full-scale investigation into unfair bank charges on current accounts.

The OFT inquiry will be completed by Christmas, and will examine whether the "provision of so-called free banking" is explained clearly to customers. The OFT will also continue to study the fairness of unauthorised overdraft fees.

OFT chief executive, John Fingleton, said:

"This market study will enable the OFT to consider wider questions about transparency and value in the provision of personal current accounts. This will provide the necessary context for assessing the fairness of unauthorised overdraft and returned-item charges before we apply the law in this area."

Needless to say the banks have been quick to issue a counter threat, by warining that any regulatory restriction on unauthorised borrowing charges might force them to end free banking to their customers who stay in credit.

As noted many times before on this site, banks are not charities they will make money one way or another.

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Consumers Encouraged To Litigate

The Office of Fair Trading (OFT) has decided to encourage consumers, who have been cheated, to litigate against the miscreants.

The OFT has stated that it believes that the public should have wider access to litigation, if they have bought goods from companies that operated cartels or otherwise colluded to fix prices.

The OFT has also committed to becoming more proactive in helping consumers bring private claims.

Lat year consumers were given the right to sue companies that have engaged in anti-competitive. However, the costs of mounting such a lawsuit has prohibited many from taking them to court.

The OFT has stated that it will address the costs of consumer based litigation. It intends to introduce new forms of "no win, no fee" arrangements.

Matthew Levitt, a competition law expert at Lovells, is quoted as saying:

"The OFT will be sensitive to the need to avoid the 'excesses' of the US system. One of the key features of the US system - triple damages (where consumers are awarded compensation equal to three times their loss) is not part of the OFT's proposals."

However, quite how long the process of taking this forward to practical reality will take is anybodies guess.

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OFT Backs Down

Proving once again that the financial regulatory bodies in Britain are "pussies", when it comes to standing up to vested interests, the Office of fair Trading (OFT) has baoked down on imposing limits on bank charges.

The OFT tried its best to save face by shrouding its decision in the thin, and flimsy, veneer of initiating an in depth review.

Stating:

"The banking industry is not straightforward and that a more detailed examination is needed".

However, the reality is that the OFT has faced sustained and intense lobbying from the banks and they have a greater sway with the OFT than the consumer.

Some banks have threatened to end free accounts, were there to be a regulatory move against excessive and unjustifiable bank charges.

Needless to say, consumer groups see the OFT decisions for what it is (a total climbdown).

Which? said:

"We agree it's crucial the OFT investigates retail bank pricing. But today's announcement still leaves people in the dark about unfair bank charges.

Before the end of the year consumers could be charged up to £3.5BN by their banks in unauthorised overdraft charges. So we are telling consumers not to be put off claiming back their charges while the OFT is looking into this - claim them back now."

In 2006 Which? calculated that bank customers pay £4.7BN each year on default charges. No wonder the banks like to make these charges.

John Fingleton, OFT chief executive, said:

"The UK retail banking market performs well in many dimensions, especially relative to international norms. However, the issue of bank current account charges is a matter of real concern to the banks' customers, and raises wider questions about competition and transparency of pricing."

However, just because the OFT are "pussies" doesn't mean that the consumer has to be one. Consumers should challenge every single unreasonable charge levelled on them by banks, as a matter of course, in many cases these challenges result in refunds being made.

If nothing else, at least it annoys the hell out of the banks and might make them think twice about "drinking the well dry" (ie overcharging consumers).

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