31 August 2007
Last month the Office of Fair Trading (OFT) announced a High Court test case against several leading banks to clarify the legality of bank charges. The test case will take place on 14th January 2008. In the interim, the Financial Ombudsman Service (FOS) has frozen any outstanding claims it was dealing with and the Financial Services Authority (FSA) has given the banks the option to freeze any unresolved claims until a decision is reached at the High Court.
New research from uSwitch.com, the independent price comparison and switching service, reveals that the ‘big freeze’ on bank charges could result in almost one million claims*, worth a staggering £713 million*, being put on hold. By keeping this money from consumers, uSwitch estimates these frozen claims could net the banks an extra £20.5 million* in interest over the next six months while the OFT prepares its case.
"Legal clarity on bank charges is long overdue," Mike Naylor, Personal Financial Expert at uSwitch.com, said.
"The OFT has already sent out a clear message that it does not consider default charges to be a legitimate source of revenue. In light of the banking industry's refusal to change its practices the issue is now set to be determined once and for all by the courts.
He concluded: "The day of reckoning for penalty charges is finally on the horizon. The OFT has said that that the hearing at the High Court will take place at the beginning of next year, and for banking customers, this day cannot come soon enough.”
* Notes to readers
£713 million - uSwitch calculates that the average amount of bank charges levied over a six year period is a total of £742 per person (68% of people who had been charged were charged between £1 and £500, and 6% were charged more than £2,500). uSwitch.com estimates that the total value of ongoing claims or claims that are on hold equals £713 million (960,870 x £742).
1 million cases - Online Research for uSwitch.com carried out by YouGov (August 2007) shows that 20% of respondents refund claims were still ongoing. 960,870 bank charge claims are currently on hold or are ongoing. This includes 633,241 on hold or ongoing with banks, 166,289 with the Financial Ombudsman Service and 161,250 claims involving legal action.
£20.5 million - uSwitch.com estimates that the banks will earn £20.5 million in interest on the £713 million of claims ongoing or on hold at a rate of 5.75 per cent (the Bank of England Base Rate) over the next six months.
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