BANK CHARGE REFUNDS MAY HAVE HIT £1BN
Patrick Collinson.
Tuesday July 31, 2007
The Guardian
· Estimate leaps after HSBC reveals its full costs
· Payouts turn 21% profit rise in UK into 11% fall
Britain’s high street banks may have paid out £1bn to customers in
allegedly unfair charges for unauthorised overdrafts and bounced
cheques, it emerged yesterday. The full impact of the consumer
rebellion against charges was revealed as HSBC said it had paid £120m
in refunds – five times higher than earlier estimates.
In recent months millions of people have downloaded complaint letters
to send to their banks, and courts across the country have been packed
with customers demanding refunds. Until now it was thought that the
total for all banks could be about £200m, but the HSBC figure –
contained in its half-year results yesterday – suggests that the true
figure could be £1bn since HSBC has a 14% market share of British
bank accounts.
The banks have won a temporary relief from further payouts following
the decision last week by the Office of Fair Trading to seek a
high court ruling directed at nine banks, including HSBC, aimed
at resolving the legality of the charges. During the progress of
the court case – which could take several years – the banks have
been granted a temporary waiver by the Financial Services Authority
halting the need for further repayments.
HSBC said it would fight the case vigorously. "We are quite
differentiated from other UK banks in that we are the only bank to
offer a £10 buffer on overdrafts and we have the lowest fees. We
feel very strongly that we have been treating customers fairly,"
said Dyfrig John, UK chief executive of HSBC.
The bank revealed that 2007 first-half profits from its British
high street operations fell by 11%, which it directly attributed to
charge refunds.
Without the repayments, it said UK profits would have been ahead
by 21%.
Profits were also held back by an increase in provisions to cover
worsening arrears in mortgages and credit cards.
HSBC said it would flash up messages on its cash machines warning
customers if a withdrawal would put them over their limit. The bank
says it is the first to do this, but for the time being they will
appear only on HSBC-owned machines.
The HSBC figures come just after a strongly worded warning issued
by the FSA to the chief executives of all British banks, demanding
an improvement in the way complaints are handled. It said it found
instances where banks were threatening to close the accounts of
customers who complained about unfair charges, and it was moving to
enforcement action against two unnamed firms, which could result in
a large fine or other penalties.
Customers, spurred by activist websites such as moneysavingexpert.com
and no-win, no-fee claims companies, have claimed that the overdraft
charges are illegal as they bear no relation to the bank’s real
costs. Claims may be made for charges going back six years and in
some instances run to many thousands of pounds.
Analysts estimate that British banks earned about £4.7bn in fees
and interest charges last year. In most cases the banks have settled
out of court rather than justify their fees in public. In one case,
a Norfolk businessman reclaimed £35,987.
According to consumeractiongroup.com, which publishes a running tally
of the sums customers have won in refunds, the typical amount reclaimed
is £1,725.
HSBC refused to disclose its typical payout, but it is understood to
be in line with the figures on the website, suggesting that it has
sent refunds to 70,000 customers.
Shares in HSBC, the world’s third largest bank, yesterday rose 12p to
892.5p, on relief that HSBC’s US lending woes may be easing – though
the bank warned that economic growth in the US remains sluggish and
that Britain "remained a highly challenging operating environment".
Globally, HSBC’s profits were rescued by buoyant markets in Hong
Kong and the rest of Asia. Overall profits rose 14% to $14.2bn
(£7bn) in the first half, against $12.5bn for the same period last
year. HSBC generates 7% of profits from its British high street banking
operation. While profits in the UK fell back and plummeted in North
America by 35%, they rose strongly in Asia Pacific and Europe. It said
yesterday it was opening branches in Kazakhstan, Vietnam and Armenia.
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