|
How
do banks calculate bank charges?
UK
banks have been reluctant to disclose the costings of how bank
charges are set for reasons of 'commercial confidentiality'.
However,
when pressed by the House of Commons Treasury Select Committee, they
have revealed that charges are designed to off-set all of their debt
recovery costs. That would include irrecoverable
enforcement costs for people who default on loans (consumer and
commercial) and debt write off from bad debts, bankruptcy and liquidation.
So,
bank charges do not relect the actual cost the bank incurs in
handling your account. Below is an extract from the House of
Commons Treasury Select Committee's 2nd Report (2005) available
online here:
http://www.parliament.the-stationery-office.co.uk/pa/cm200405/cmselect/cmtreasy/274/27405.htm
50.
Mr Varley claimed that in Barclays' case "the charge was
insufficient to cover the administrative costs".[89] In a letter
Barclays expanded on the costs arising from a late payment: these
included additional operating expenditure (relating to: writing
letters and making phone calls, the dedicated collections department
which deals with accounts which have been in breach for over 30 days,
developing repayment plans and monitoring accounts), increased credit
risk and capital costs.[90] Sir Fred Goodwin told us that for RBS
"The costs are going to pay for all the people we have who
pursue debt, collect debt, speak to customers and chase payments. The
way these charges are arrived at is by taking these total costs and
making some assumptions about the volume that is going to come
through to arrive at the individual charges".[91] We noted in
our previous report that the average charge had increased by over 50%
from £12 in 1998 to nearly £19 in 2003. It could be
considered strange that the industry's costs have risen so
dramatically, when data from APACS indicate that provisions for bad
debts have remained constant.[92] Also, continued advances in IT
should have reduced costs by automating processes. Of course it may
be that the industry could argue that the average fee did not cover
the costs involved adequately in 1998.
51.
Credit card issuers continue to maintain that their penalty charges
represent a fair recovery of the costs involved, but it is impossible
to know—because companies have been unwilling to place in the
public domain the information needed to create confidence that these
charges are reasonable. We therefore strongly welcome the
investigation by the OFT and await the result with interest. We trust
that, irrespective of its eventual conclusions about the charges, the
OFT's report will contain sufficient detail on the way charges are
levied to allow judgements to be made as to whether fees are being
used to extract additional revenue from cardholders (including those
in financial difficulty) rather than covering reasonable costs. It is
in the interest of companies themselves for such information to be
publicly available, so that their customers can see that the charges
are reasonable.
|
