The Supreme Court of England and Wales has ruled that banks do not have to repay fees charged to customers for overdrafts and other account penalties. The news is a blow to the many campaigners who have been using the internet to share advice and reduce legal costs by developing pro-forma techniques to reclaim bank charges. Eventually the case ended up with the Office of Fair Trading after a super-complaint from consumer rights organisations Which? and Citizens Advice Bureau. But also a relief given the sabre-rattling threats of universal cash machine charges. The banks have won the battle, essentially on a technicality: that the OFT did not have the power to determine whether the charges were unfair.
However, long before this battle was concluded, the banks had lost the war. Even before the credit crunch banks had become significantly unpopular due to the ‘unfairness’ of charging customers for getting into financial difficulty. Banks were thought by many to be acting in an under-hand, dishonest fashion. Some high street banks began the dispute by allowing the legal cases to run their course in lower courts, and then failing to challenge them – resulting in (relatively) small payments to bolshie customers. Some banks (eg. Nat West) then changed tack and threatended to close the accounts of those who complained.
In my view, the banks’ position was undermined not by their tactics in the dispute but by the fundamental lack of honesty in the relationship with customers. Let’s be clear: free banking is a chimera. For too long high street banks have been providing a service (which in many cases has been excellent, improving and innovative) to customers without a charge and pretending that there are no costs involved. All the while they cut costs, outsourced administrative functions, closed branches, without ever seriously examining whether a different relationship could be struck up with customers. And as newspapers are finding out, if you tell people something costs nothing for long enough, you lose a sense of value in your business.
The distance that this helped create between bank and customer is further exacerbated by the lack of serious competition on the high street – even before the credit crunch brought a new round of consolidation – meaning that customers do not feel as though there is much choice as to who you bank with. When I was making the decision, as a young teenager, it was between Nat West’s free CD walkman and Lloyds TSB’s free camera (35 mm, not digital) – hardly a decision which promotes responsible financial management. And the sense that the banks had all the power, and none of the accountability to customers, eventually ended up with the foolish speculation which brought about the credit crunch.
The banks may have won this particular battle but they have lost the respect of customers and will struggle to win it back. It’s a market ripe for a new entrant to break the mould.
