Banks earning £1.2bn a year from 'illegal' penalties
Banks generate £1.2 billion a year from penalty charges deemed to be illegal by consumer groups, calculations by a leading City bank showed today.
Analysts at Credit Suisse said the yearly total was less than the £4.7 billion claimed by campaigners, but added that the banking sector could still stand to lose about £500 million a year if regulators ruled fees to be unlawful.
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Some reports suggest the total repayment bill faced by banks and building society could be as high as £7.2 billion if customers claimed for six years worth of charges - as they are entitled to.
But the true figure is likely to less due to the fact that not everyone will claim and those that do will not necessarily see a full refund of the charge.
In its report, Credit Suisse noted: "Based on our estimate that annual charges are around £1.2 billion, we crudely estimate that banks have generated £4 billion to £5 billion of charges in total over the last six years.
"Although any likely provision for prior claims is likely to be considerably smaller than this."
The Office of Fair Trading (OFT) is currently investigating the issue of bank charges amid a customer revolt over fees.
Its findings - due to be out within the next few weeks - could call on banks to cap the amount they charge customers for going over their agreed spending limits.
At present people are hit with fees as high as £35 for going into unauthorised credit.
Campaigners claim that such charges are illegal, suggesting that the cost of administering a transgressing of overdraft rules is as little as £2.50 to £4.50.
Credit Suisse said it does not expect the OFT to cap charges at £12, the ceiling it imposed on credit card fees last year.
Its report added: "We estimate that if average penalty charges were reduced to £25, the impact on bank profits, before any offsetting action, would be around £300 million, or 1 per cent of domestic sector profits."
If set at a limit of £20, the cost to banks would grow to £500 million, it added.
Commenting on the report, Martin Lewis, founder of MoneySavingExpert.com, said: "Fees are immensely profitable for banks and that is the problem. No-one is saying they shouldn't be charging anything, it is about how much is being charged. Banks are taking too much money."
