Overdraft rip-offs at your bank

BANKS are hitting customers who go overdrawn with spectacularly high interest rates and unfair penalty charges, it is claimed today.

An unauthorised overdraft can be charged at up to 33%, while some customers have to pay £70 for going into the red for a single day.

The Liberal Democrats are calling on the Office of Fair Trading to investigate charges which are thought to earn banks more than £1bn a year.

In a separate move, the House of Commons Treasury Select Committee is calling on banks to open their books to MPs so they can check for profiteering.

Both inquiries follow record profits announced by the major banks in the past few weeks.

They are cashing in on a trillion-pound personal debt mountain, which is generating massive income from interest rates and charges.

The scale of the charging is huge. For example, 43% of income generated by banks on credit cards comes from charges rather than interest on balances.

A survey of overdrafts by the Lib-Dems reveals the charges are linked to driving up profits rather than reflecting the genuine costs of dealing with a customer in debt.

It found some current accounts offered by NatWest and Royal Bank of Scotland charge more than 33% interest on unauthorised overdrafts. The current Bank of England base rate is 4.75%. By contrast, the rate charged by HSBC is a much lower 14.80%.

On top of the high interest rates, the Lib-Dems say the charge for bouncing a cheque or refusing a standing order is as high as £30 with most of the big names.

Some banks will impose charges even though they have cheques in their systems which, when cleared, will put the customer back into the black. This means the longer banks delay the clearing of cheques, the greater scope they have to make money from penalty charges.

The fact that the big banks are making 'excess profits' from customers was revealed in 2001 in a Treasury- sponsored inquiry headed by Don Cruickshank.

At the time, he put a conservative figure on the over- charging of £675m but it will now be around £1bn.

The Government promised to bring in controls on profiteering but these have not been implemented.