26 November 2009

Who's in charge around here?

To the general surprise of just about everyone, yesterday Britain's shiny new Supreme Court ruled that bank charges for exceeding agreed overdrafts were not illegal, much to the relief of the banking industry. For many years, High Street banking has been the poor relation to the glamorous Investment arm, and the prospect of having to shell out £2bn in backdated refunds made the margins look even less attractive. Everyone from so-called Consumer Groups to the banks' oldest chums, the Conservative Party, confirmed how shocked and disappointed they were - Shadow Financial Secretary Mark Hoban said: "This is a blow for consumers."

My first question would be: "which consumers and in what way a blow?" The recent massive bail-out by the government seems to have muddied this debate somewhat; that taxpayers now own a large proportion of many British banks doesn't make the services they provide magically cost nothing, from the shiny-glass-and-IKEA-sofaed bank foyers, to the ubiquitous street-based cashpoints. Who pays for this?

At the moment, the charges levied by banks for breaching overdraft limits do. Or as The Guardian rather emotionally expressed it: "The fact that all big banks openly and routinely use this source of revenue to subsidise the cost of providing banking services for better-off clients flies in the face of natural justice". I can't imagine what sense of outrage The Guardian must feel every time it enters a supermarket and finds the price of beans for the unemployed is the same as for the rich. Or as they might put it, that the poverty-line shopper subsidises the better-off customer. If they are examining the banking system for natural justice, I would think the last two years would show it is probably the wrong place to look.

Bear in mind we are talking about exceeding agreed overdrafts. In other words, when we promise to take £100 and instead end up taking £150, through need, bad planning or sheer stupidity. Try using that arrangement in our above supermarket - paying for one tin of beans but taking two - and see how far it gets you. Little sympathy or natural justice from Mr ASDA, I think you'll find.

These charges are not a subsidy paid by the poor - the level of income has nothing to do with it. It is a levy paid by the stupid, after having agreed a transaction - the fact that banks only charge you money and don't report you for theft reflects the fact it is an unconscious incompetence. But incompetence none the less - and I include myself in this group, as someone who has exceeded an overdraft and paid the price for it.

Let's imagine a world without this 'stupid tax' - where everyone is free to borrow as much as they like willy-nilly without thinking about the consequences or paying anything for the privilege. To pay for the convenience of cashpoints, bank managers and customer call centres we'd have to have a levy upon cash points, monthly current account fees, a tax upon transactions. Everyone would soon resort back to the practices of my parents' generation: queuing at the bank once a week for cash, paying for things by cheque or else stuffing it in a matress. In a world that relies on the free-flowing of electronic transactions, how exactly would this benefit the consumer?

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