If you've been keeping an eye on the media over the last few months, especially the parts of it covering personal finance, you can't fail to have noticed the huge row over bank charges. Stories abound of customers reclaiming thousands in backdated fees from their banks, and with consumer groups, activists, and government regulators squaring up towards seemingly intransigent banks, the stage is set for a battle that could affect the financial future of everyone who makes use of financial services. But what is the hoo-haa all about?



The basic accusation laid against the banking industry is that the various charges levied on customers who go overdrawn, miss repayments, or commit other misdemeanours are excessive. Under the financial services industry regulations laid down by government, any such charges must only be of sufficient size to cover the administrative costs the banks incur by dealing with miscreant customers. Many outside the banking industry think that this isn't what's happening, and that banks are inflating their charges to punitive levels, and using them as profit makers - both of which are illegal under current laws.

Naturally, the banks dispute such accusations, although when the row first blew up in the arena of credit card late payment charges, and the regulators insisted that these charges be slashed, all banks promptly agreed to do so.

Further, in many cases, bank customers have been able to reclaim past charges for going overdrawn, simply by asking for them back. As these repayments have sometimes run into four figures or more, and the banks concerned agreed to the refunds without recourse to legal action, the implication could well be that even the banks are unsure what the true legality of the situation is.

Thankfully, the matter should soon be clarified with the instigation of a test case to decide whether the charges are fair, or punitive and illegal. There is now an embargo imposed by most banks on refunding disputed charges, pending the outcome of the case. If the banks lose, the floodgates could open, and the costs could run into millions.

Would this be a good thing for customers?

Well, should the banks be faced with multi-million pound refunds because the decision goes against them, the money will have to be found from somewhere. And that's without considering the further millions of pounds of income the banks will lose if charges are drastically reduced. Already, there are monthly or annual fees being introduced for current accounts, credit cards, and other financial services - irrespective of whether the customer goes overdrawn or otherwise breaks the terms of their agreement.

Make no mistake: the banking industry won't allow defeat to erode their profits, and the lost revenue will be reclaimed from somewhere else. It may well be that mainstream banking customers will have to pay a fee to subsidise lower charges for those who bank less responsibly.