High Street banks in UK are 'mugging' their customers » Bill Payments » 24dash.com

High Street banks are "mugging" their customers by imposing "illegal" charges, an MP said today.

Liberal Democrat social exclusion spokesman Matthew Taylor said charges on customers who go over their overdraft limits are a "major contributor to the debt crisis".

Mr Taylor (Truro and St Austell) told MPs penalties imposed on customers for bounced cheques and declined direct debit payments netted the six main banks £4.5 billion last year.

He said in a Westminster Hall debate: "This is a major contributor to the UK debt crisis and to social exclusion.

"Most importantly of all, these bank penalty charges are more than inconvenient, more than unfair, they are illegal."

He said the charges, which were on average £30, could lead to a "spiral of debt" as penalties mounted up.

Mr Taylor said: "The truth is, this is the banks using poverty as a source of profit."

He said the law only allowed banks to impose a penalty that allows them to cover the administrative costs of bounced cheques or the refusal of a direct debit payment.

Mr Taylor said: "The absolute maximum it costs the bank in these cases is £4.50 for a bounced cheque.

"For all other items, the absolute maximum in this electronic age where it's all done automatically through computer is £2.50."

He said that any time people had refused to pay the charge and threatened to go to court the banks backed down.

Mr Taylor said: "The only possible reason is that they know they will lose.

"If they lose a test case they know they will forfeit this multi-billion-pound source of illegal profit forever."

Mr Taylor added: "They know it's an illegal rip-off of trusting and often impoverished customers.

"They are mugging their customers and the Office of Fair Trading and the Government are letting them get away with it."

Mr Taylor said a recent OFT investigation into credit card charges had led to a £12 limit and called for a similar inquiry into bank penalties.

Treasury Economic Secretary Ed Balls said banks should be "leaders in corporate responsibility".

He said the OFT believed the same principles of "fairness and transparency" that applied to credit card charges are likely to be applicable to bank default charges.

The OFT has instigated a "fact-finding" exercise into the banking sector and will decide what "proportionate and appropriate action to take".

Mr Balls said: "This OFT inquiry is serious, and it's certainly being taken seriously by the banks."

Mr Balls added: "I'm happy to confirm that the principles which applied in the case of credit cards equally apply in the case of the banking industry and it is for the OFT to get the facts and to judge whether they think the application of those principles and the law requires them to act.

"It's not for me to judge the facts, that's for the OFT, but it's clear the principles which applied in the case of credit cards also apply in the case of the banking industry."

After the debate, Mr Taylor said the charges should be "drastically slashed".

He said: "Ministers confirmed what we have known all along - that banks, like credit card companies, cannot justify penalty charges for anything above their administrative costs.

"The law says bank charges must be drastically slashed. If the banks postpone reducing their charges until the OFT findings are published, they are clearly ripping off their customers to make billions of pounds in unfair profits.

"Everyone needs to know that their penalty charges are illegal and they should phone their bank to claim them back. The £4.5 billion in penalty charges each year by Britain's top banks is the biggest bank robbery in Britain - against their own customers. It must be stopped."

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