Are UK banks ripping off their customers?

Vince Cable

In a damning indictment of the UK banking system, which has had its shares of ups and downs over the past two years, Business Secretary Vince Cable has said in an interview with the BBC that British banks are ‘ripping off' their customers.

In the interview, Mr Cable said that forcing banks to change their practices would be a key test of the coalition government.

"When we talk about restructuring the banks, what's going to come out of this is a more competitive system where the customers are not ripped off," he said. Due to the lack of healthy competition, consumers were paying the price for a marketplace dominated by a few major banking systems.

"One of the negative side effects of this crisis is that our banking system that was already very concentrated is now even more concentrated so there's less competition, less choice and bigger temptation for banks to earn margins at the expense of their customers," he added.

Cable's comments come on the back of a Panorama report that states high street banks are charging as much as 167 percent interest on unauthorised overdrafts.

Unacceptable culture

Despite the government's insistence that the banking culture that arguably caused the global recession would change, there is little evidence of that as banking bonuses continue to be handed out.

Mr Cable commented on this saying, "I think the bonus culture that continues is unacceptable. The coalition agreement makes it very clear that unacceptable bonuses are continuing and that is something we want to try to stop and that reflects the lack of moral compass."

According to a 2006 report from the Office of Fair Trading, Britain's banks earned £2.6 billion in profit from penalty charges.

The Panorama report stated that customers of the Halifax, which is owned by Lloyds Group Plc, were being charged an effective annual rate of interest of 3,650% on an overdraft of just £10 despite being a recipient of more than £20 billion from the taxpayer in the bailout of late 2008.

Halifax have defended their rates saying customers "want a clear overdraft charging structure" and the £1 a day represents "a simple set of daily fees".

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