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News that HSBC paid out £116m to customers claiming unfair overdraft charges in the first half of 2007 alone, came as a surprise to customers and the banking sector alike.
The figure is far higher than expected - the most recent estimate by analysts at Credit Suisse for the banking sector’s liability in the first half of 2006 was £200m . As HSBC represents 14 per cent of the UK current account market, the bill for the whole of UK banking sector in the first half of 2007 could be as high as £1bn.
But with the issue due to be settled in the courts, (following last week’s announcement that the OFT will bring a legal action against nine of the UK’s largest high street banks), both sides have agreed to a temporary truce. All claims that are currently in progress will be put on hold, pending the outcome of the court hearing.
So where does all this leave the banks and their customers?
Clearly it was in everyone’s interests that a legal precedent be set to settle the issue once and for all. The time and cost of dealing with thousands of individual claims was causing chaos at the banks and in the county courts.
If the judge hearing this case rules against the banks, the cost of meeting all claims will be horrendous, but causing only short term damage to banks’ balance sheets. The banks are accountable, after all, to their shareholders and will simply recoup their losses elsewhere.
Even if customers lose this case, I doubt whether the status quo ante will remain in place. After the emotion that this issue has caused over the last year, I doubt whether the banks will continue that to penalise delinquent customers to benefit their solvent ones.
The start of the change in how banks charge their customers is apparent for all to see. First Direct set the ball rolling in March with the introduction of a £10 a month fee on its current account. Lloyds Bank has just informed its Plus Account customers that it will only pay interest on credit balances of £2,500 from the end of August, rather than £5,000 as at present.
Other banks are encouraging customers to switch to ‘premier’ current accounts, which typically charge £10 a month or more, for a range of ‘free’ extras such as free travel and roadside insurance.
Another source of extra revenue is foreign currency transactions, where banks have been quietly upping their charges on both cash withdrawals and credit card transactions.
Defaqto head of banking, David Black, reckons that cheques will be the next target for the banks to make a charge for.
While the fees charged to delinquent customers probably are unfair, what we don’t want to see is the banks using the outcome of this case as an excuse to switch all customers to European-style bank charges, whereby customers pay through the nose for all transactions.
That would be a loss for everyone and we mustn’t let the banks get away with it.
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Banks continue to pay scant regard to customer confidentiality, as this tawdry tale of a NatWest customer’s battle with a local branch of the bank portrays only too vividly.
Hazel Speed, a self employed writer, from Welling in Kent, shares the same phone number as the Bromley branch of NatWest - apart from the bank’s 0845 prefix and Miss Speed’s 0208.
This has led to hundreds of NatWest customers ringing Miss Speed’s telephone number over the last six years - since 2001 when Cable & Wireless installed the bank’s current phone number.
Miss Speed says: “People ring me up thinking I’m the bank and give detailed information about their bank accounts. Sometimes they give instructions to transfer thousands of pounds between accounts, so I am sure I could easily get their PIN numbers if I wanted to. If I was not an honest person, I could have defrauded the bank’s customers of hundreds of thousands of pounds by now.”
Despite alerting the bank to the problem in 1991, NatWest has refused to change its number. Instead, Miss Speed says the bank has sent her bullying letters telling her to change hers instead. Meanwhile she continues to re-direct numerous callers to the bank.
BT says the last seven digits of Miss Speed’s number should be unique to her and that Cable & Wireless was at fault when it supplied the same number to NatWest.
Why NatWest is refusing to do the decent thing and change its number is hard to fathom, particularly when Miss Speed has been a customer of the bank for 30 years.
Small wonder, then, that bank customers are so angry with their banks when the latter show such cynical disregard for their customers’ financial data and the distress they cause.
NatWest seems to have forgotten the undertakings the high street banks were required to give the Information Commissioner, Richard Thomas, last month when he admonished them for a series of security breaches involving customer data.
Even assuming this wrangle is eventually sorted, Miss Speed deserves some sort of compensation for the trouble it has caused her. “Quite apart from the potential security breaches, the calls have been a real nuisance because I work from home. If there’s a lawyer out there who would like to act pro bono for me, I would like to hear from them” she says.
Today, the Office for National Statistics released its latest set of figures on the UK economy's growth. In the last quarter the UK grew by 0.8 per cent, taking the UK's run of positive growth to 60 months.
It has never done better. Records only go back a few hundred years, but prior to the date that figures start from, the UK economy revolved around the harvest, meaning the weather was the key factor. It seems unlikely the UK has ever enjoyed such a sustained period of growth - not when the Romans were here, not even before that.
HBOS has produced figures showing how the UK's performance compares with the rest of the OECD - and they are truly impressive. Only Spain comes close, with 56 months of continued growth - then comes Australia with 26 months, in fourth place Switzerland with 24 months and then the US with 23 months.
It's been 16 months since France had a quarter of negative growth, 11 months for Germany and 10 months for Japan.
No doubt Gordon and Alistair, perhaps joined by Ed Balls, will be celebrating, and no doubt we will be told about the exemplary performance over and over again.
It is worth bearing in mind, however, that for average growth during their period our performance was not so impressive.
Our average growth has been 2.8 per cent, compared to 3.2 per cent enjoyed by Uncle Sam. In fact, Spain, Australia, Switzerland, Portugal, Korea, Luxembourg, Canada, Norway, Mexico, Finland, New Zealand and Turkey all did better.
In fact of the 24 OECD countries, the UK ranks 14th for average growth over the 60 months.
It would appear the UK has had stability, but then again, it's been more like stable anaemia.
The campaign by the Pensions Action Group, representing 125,000 workers who lost most or all, of their company pensions between 1997 and 2005 reaches a climax today as the Pensions Bill returns to The House of Commons.
MPs will be asked to vote on several cross party amendments)which received overwhelming endorsement in the House of Lords last month.
These clauses would improve the level of help given to all of these people via the Financial Assistance Scheme, to the level provided by the more generous Pension Protection Fund, which applies to schemes that failed after 2005.
It would also make payments immediately to those who have passed retirement age and yet are receiving no financial help at all. Many have died awaiting help, others are suffering due to the stress of losing their pension.
Let us hope that the 400-odd MPs of all parties who have signed various Early Day Motions in the past in support of these victims today vote with their consciences for these cross party amendments so that this matter can finally be resolved, and some confidence restored in company pensions.
For our new Prime Minister, who has made so much of his origins as a son of the manse and his wish to help the poorest sections of our society, rectifying this injustice should be top of his agenda.
It does seem that there is danger in the level of immigration coming into the UK and in the level of overseas investment flooding in.
The danger with immigration is this. Sure, it might boost the economy, but you have to ensure it boosts the wealth of people already living here. If UK plc is better off, thanks to immigration, then this is a limited benefit if the new wealth is unevenly distributed towards new members of the UK populace.
It's not the cheap labour I refer to here, it’s the highly paid: those who commute to work in the City every week via Eurostar, for example.
The danger is that house prices will be pushed up, making property all but unaffordable for those who have not already jumped on the bandwagon - luxury goods will jump up in price, and those who are unfortunate enough not to work in the financial services sector see limited benefit.
And if the UK is to compete, we need to keep our tax regime competitive, and yet, it's competitive taxation rates that are fuelling the phenomenon of uneven income distribution.
Richard Lambert, the CBI Director-General puts it this way. Globalisation means the opportunities for profit are growing - and with that income for those who run business and control capital soars. But, for the workers, who are in competition with a global labour force, salary goes the other way.
The current row over taper relief on capital gains tax enjoyed by private equity managers is a classic example of how resentment is growing.
As for overseas investment into the UK, this is a good thing in the short term, but if we are not careful, in the future this could become a problem as profit flows from out of the UK into the regions of the world where the assets are owned.
This is the inevitable and long-term consequence of our soaring balance of payments deficit. Every year, the UK is borrowing from abroad, and it's being funded by selling our assets. Of course, there will be a comeback eventually. Its root cause is simply that we spend too much money in comparison to our income. If we saved more, then this drift of UK assets abroad would start to reverse.
It's harder to suggest a solution. More money spent on education, more housing, and frankly (this is the bit that will prove controversial) higher taxes for the well paid is the ultimate solution.
This is not a problem the UK can tackle on its own. Higher taxes in the UK relative to the rest of the world will simply mean we lose out in the global marketplace.
It's a bit like global warming. If the UK tries to tackle uneven income distribution in isolation, it will have little impact, and maybe will actually make UK plc worse off.
Only when there is a global acceptance of the idea of progressive taxation, in which tax rises the more you earn, will this problem be dealt with.
Anyone venturing abroad this summer had better think carefully about the type of plastic they take with them. The banks are raising the cost of using credit and debit cards abroad by upping a whole range of hidden transaction fees.
Just withdrawing cash from a hole in the wall will attract, in most cases, a charge of about £2 a time, while the purchase of goods and services made on credit and debit cards will attract currency conversion fees as well as a flat fee of around £1-£2 as well.
Then there is the notorious “foreign exchange loading” which has been upped to a massive 3 per cent on Morgan Stanley’s Goldfish card – a whacking 0.25 per cent more than what most other providers are charging.
Debit cards issued by NatWest, Royal Bank of Scotland and Lloyds TSB have also had their foreign loading rates increased, with Lloyds TSB’s jumping from 2.75 per cent to 2.99 per cent, from the end of July.
Only a few cards, such as Nationwide’s Gold VISA and the Post Office’s Platinum Master Card, don’t impose foreign exchange loadings on overseas transactions.
For the over 50s, Liverpool Victoria and Saga issue credit cards without foreign exchange loadings, but only for usage in EU countries.
For cash withdrawals, you would be well advised to arm yourself with a Nationwide Flex Account card - the only card that doesn’t charge the normal £2 transaction fee.
The worst trick of all to watch out for while abroad is the pernicious “dynamic currency conversion” scam, whereby the merchant charges you in your home currency and then converts the bill back into the local currency at an exchange rate of their choice. The bill then has to be converted yet again back to your home currency by the card provider, incurring yet more charges.
Clearly, these stealth charges are just one of the ways in which the banks are recouping some of the income they have lost through the recent clampdown on penalty fees and overdraft charges. But whether the banks are making these fees clear enough to their unsuspecting customers is a moot point.
I expect millions of holiday makers are in for a nasty shock when they open their bank and credit card bills on return from holiday this summer.
It was different in the early 1990s, or so they have been saying. Sure, our total level of borrowing to income was lower back then, but then the rate of interest was so much higher that the cost of servicing this debt was higher in return. That's why it all proved so unaffordable, and house prices crashed and recession descended upon us, for the last time.
But today, so goes the argument, it's different; rates are lower, so our debts are more affordable, ergo, no need to panic.
But, according to a new report from PricewaterhouseCoopers (PWC), actually the cost of servicing debt today, as a proportion of disposable income, is now higher than it has ever been.
PWC has calculated that debt service costs as a share of disposable income has hit a record level of almost 19 per cent in Q4 2006, as compared to a previous peak of just under 18 per cent in Q3 1990.
That's not all, PWC also says discretionary disposable income growth – the amount of money left over to spend on goods and services after tax, rent and utility bills and debt service costs – has also been squeezed in recent years by rapid increases in domestic fuel and water bills and, to a somewhat lesser degree, by rising direct tax payments as a share of gross incomes.
PricewaterhouseCoopers estimates that household discretionary disposable income grew by only 3.1 per cent per annum on average in nominal terms in the three years from 2004 to 2006, compared to 5.2 per cent average growth in gross incomes and 4.7 per cent average growth in disposable incomes over this period.
Bear in mind, however, that the PWC findings understate the true picture.
For one thing, the study relates to the final quarter of 2006, and the rate of interest has increased three times since then.
Secondly, don't forget that inflation no longer erodes the true value of debt like it used to.
But finally, there is this thing called MIRAS. Cast your mind back to the early '90s, then we could enjoy tax relief on our mortgage. This is no longer available. John Hawksworth, head of macroeconomics at PricewaterhouseCoopers, told us that tax relief available on mortgages was not allowed for in the PWC figures.
And what conclusions can we draw? Firstly, how remarkable it is that the consumer keeps spending, when things are so tight.
Earlier this week we told how we are saving less, and this statistic can partly explain why the economy is still booming. We may have been forking out a higher proportion of our disposable income on servicing debt, but we are borrowing more, effectively releasing some of our perceived wealth which is tied up in the value of our properties.
Is this dangerous? Well, what do you think?