Jeff Salway: More incentive for customers to vote with their feet to other banks

Published on Friday 27 November 2009 19:45

AS THE Supreme Court prepared to deliver its verdict on overdraft charges on Wednesday morning it was tempting to imagine millions of people hovering above their overdraft charge reclaim forms, poised for revenge.

It's certainly easy to imagine the shock when it became clear that there would be no refunds, for now at least. The surprise was genuine – not even the banks felt that they would prevail. They fully expected the OFT to be given the green light to decide on the fairness of overdraft fees, an investigation that would have concluded in a cap similar to the 12 limit it imposed on credit card charges.

But the OFT made a fatal mistake, one that was made clear by the Supreme Court judges. Its test case was built on regulation six of the Unfair Contract Terms in Consumer Contracts regulations, which focuses on whether the charges constitute "the price or remuneration, as against the services supplied in exchange".

But it lost on a technicality – the OFT was positioning overdraft fees as supplementary to current account services, meaning they could be investigated for fairness under regulation six, whereas the Supreme Court judged that overdrafts are a core element of current accounts.

Instead it is suggested that the OFT could enjoy more success by focusing on clause five of the regulations on the basis that customers do not negotiate their contracts with banks individually. Consequently, those contracts could be viewed as being made in good faith and should not result in detriment to the customer, the m ain tenet of regulation five.

So this is not over. Even if the OFT decides against returning to the courts, the banks have tacitly acknowledged overdraft fees are unfair by scaling them down, as outlined on page 41. They are also under considerable political pressure to cut excessive fees.

In the meantime, it's down to bank customers, so many of whom are sick of being rewarded for their loyalty with shocking service and exploitative charges. There are clear signs of improving competition in the current account market, giving customers greater incentive to vote with their feet. Banks have been given an easy ride by their customers for too long, but even though the OFT case failed, the overdraft charges backlash may yet prove a watershed, if more people exercise their right to use whichever bank they want.

COMMERCIAL property is growing at its fastest rate in four years, driven by demand for high street outlets and by overseas investors taking advantage of the weak pound to snap up properties in the cities, including Edinburgh but particularly London.

But anyone diving back into the sector hoping for an action replay of the mid-2000s boom is in for disappointment.

What's clear is that boom was an anomaly, as many experts warned at the time. With just three decades of data to go on, investors – institutional and private – threw billions at commercial property when the sector took on equity-market characteristics and returns started looking abnormally high. Hardly surprising that when returns slipped, many of those investors baled out, forcing funds to block withdrawals before being drained of all liquidity.

Historically, commercial property has been considered a bond-style asset offering income and it should be viewed by investors as a diversification opportunity, not as a get rich quick play.

So viewed soberly, commercial property does look attractive in the current climate, with UK commercial property yields back to their 1990s level. In that respect, and in terms of diversification, bricks and mortar makes sense, provided you're not expecting the clock to be turned back.