'High bank charges are a festering sore'

IT will not come as a surprise to anyone with a bank account who has taken out insurance or a pension - and that's just about everyone - that complaints to the Financial Services Ombudsman are now running at the equivalent of one per second. In the same blink of an eye Britain's big five high street banks are between them raking in £1200 in profit. Could the two statistics be in any way related?

Complaints about banks rose by one third in the past year while complaints against insurance companies - many of which are now owned by the big banks - rose by one quarter. And it all comes at a time when there has been a 15 per cent rise in consumer debt, fuelled by lenders who appear desperate to hand out money even to those already heavily in hock.

There is little doubt that the sharp rise in the number of complaints to the FSO has been fuelled by a ruling last year by the Office of Fair Trading that many banks were overcharging customers. While high charges for bouncing cheques and stiff penalties for exceeding overdrafts have been a festering sore with many customers for years, until recently they have felt powerless to challenge the banks' authority. The FSO ruling has changed that and it is the banks that are now running scared of having to refund millions in over inflated charges going back six years.

There is much at stake for the banks who have an estimated annual revenue of 40 million a year from penalty charges alone. The OFT concluded that an average charge of 30 for a bounced cheque was unreasonable and therefore by definition unlawful. It suggested 12 as a fairer fee, although campaigners claim dealing with such an eventuality actually costs the banks little over 2.

Naturally many of those aggrieved over the years at the charges they have incurred are seeking to have them repaid. But it is not always as easy, with many banks often resisting until court action, and the resulting publicity is threatened.

Bernard and Jacqueline Gilhooly today stand testament to just how difficult it can be. The Royal Bank of Scotland seemingly agreed to refund them but promptly closed their account, making it impossible to access more than 5000 of refunded charges - until they called in the Evening News. Closing down accounts of those that complain is a tactic that has been used by other banks and the practice has been roundly condemned by the FSO.

Banks have a right to make money and in Scotland they are not only major employers but also key to the country's economic success. But while banking in the UK is generally cheaper than abroad, and free for most customers who remain in credit, consultants CapGemini report British banks raise half their income from overdraft and other credit charges compared with six per cent abroad.

It has yet to be seen how the banks will respond after they have dealt with the barrage of current claims for refunds although there are threats of ending free banking altogether. That would be a backward step for customers and the banks. There is enough money to be made without being greedy.