Well, D\’oh!

The Supreme Court will rule whether bank charges, imposed on millions of current account customers, are unfair.

If the court decides they are, experts predicted banks stand to lose up to £10 billion while customers are likely to see charges imposed on a range of banking services which they have traditionally enjoyed for free.

We don\’t actually see that retail banking is a super profitable industry. There\’s no particular signs of excess returns to capital. So any set of fees being charged in one place, if we try to abolish them, are likely to pop up in other areas as another set of fees.

If the banks have been making a few billion a year in revenue from those with unauthorised overdrafts then it won\’t be a terrible surprise that if they don\’t get that revenue then they\’ll stop doing the cross subsidies which they used that revenue for.

Another way of putting it, if the retail banking market was indeed competitive then those revenues would be competed away: what they gouge out of those with chaotic finances turns up as a subsidy for those with unchaotic ones. Remove that revenue doing the subsidising and and the subsidy will go.

We can even run this the other way around. If the banning of such overdraft charges leads to the extinction of the free current account then we can say, with some confidence (not perfect, but some) that retail banking is indeed competitive.

Update: the banks won.

Britain\’s Supreme Court has ruled in favour of the High Street banks in a row over overdraft charges, delivering a blow for thousands who had hoped to recoup cash.

8 comments on “Well, D\’oh!

  1. There will also be the unintended consequence that many more people won’t be able to get a bank account, will have the service withdrawn or will be priced out of the banking market.

    This will lead howls of outrage and demands that the feckless be given free bank accounts. Free bank accounts that they can’t manage and can’t be charged for if they go overdrawn. Another hidden tax on those who do manage their finances well.

  2. TGS,

    Possibly. Though more likely you’ll get a grown up version of a “child’s” account.

    No cheques let alone guarantee cards, severely limited debit card a la “Visa Electron”, absolutely no overdraft facility and no possibility of withdrawing cash you don’t have.

    Not a very exciting product, but yes, you can guarantee that the banks will be forced under law to provide them. I’m thinking “stakeholder pension” but for current accounts – legal obliged to provide, pain in the arse, zero take up.

  3. The only change that was needed was for the banks to be upfront about the charges at the point where the customer was going to go overdrawn. If the customer agrees then fine, if not he faces the consequences of not making his payments whatever that might be.

  4. This is all irrelevant.

    If a charge is legally unfair, it should be rescinded. The consequences of that action are beside the point.

    Any argument that doing this will make things worse for customers is just defending the tyranny of the majority.

  5. Just write them a snotty letter saying you’ll “have to seriously consider” moving your account. They’ll write a snotty letter back admitting no fault, telling you to take responsibility for your own probelms, but agreeing to cancel the charges “as a gesture of goodwill”.

  6. @1
    “Another hidden tax on those who do manage their finances well.” … NO NOT ANOTHER TAX, currently those who manage their finances well are SUBSIDISED by those who don’t, removing the subsidy is NOT ANOTHER TAX.

    In a fair an proper world we probably should all pay for the banking services we use, rather than the well organised getting a ride out of the less well organised.

  7. Jonny,

    I’m not sure I follow your point. I keepmy side of the contract, the bank makes money out of the cash I have in my account and in return I get free services.

    I go overdrawn and the bank doesn’t make money, in fact loses money.

    So in the latter case to get free banking those who keep money in theor account subsidise those who go overdrawn.

  8. @TGS no, you’re wrong here. Banks lose money on people who use their current account normally, and going over-overdrawn barely costs the bank any more than just using the account.

    Banks continue to offer current accounts partly because they make money by selling loans, mortgages, etc, to customers, and partly through penalty charges on going overdrawn.

    At the moment, you’re getting something quite expensive for free partly because of the people who pay penalties, and partly because of the people who take up bank mortgages, loans, etc.

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