News

The competition watchdog has launched a court case against the major banks to establish whether their unauthorised overdraft charges are unfair.

The Office of Fair Trading lodged papers with the High Court after eight high street banks agreed to a test case to settle the issue.

The OFT, which has been investigating the charges since March, said it believed they were unfair, but this has been disputed by the banks.

Tens of thousands of consumers have complained about the charges, which are levied on people who breach their authorised overdraft limit, with many taking their bank to court.

Customers can be fined as much as £39 for a single bounced payment. While it has never been revealed how much an unauthorised overdraft actually costs banks, some commentators have estimated it could be as little as £2.

At the heart of the dispute is whether the rules of the Unfair Terms in Consumer Contract Regulations apply to the charges, and if they do, whether the level they are set at is fair.

The British Bankers’ Association said the banks were working with the OFT and City watchdog the Financial Services Authority to ask the courts to clarify the legal position regarding overdraft fees. But it added that the banks still believed the fees were clear and fair.

Meanwhile, the FSA has agreed to allow banks to stop dealing with complaints over unauthorised overdraft charges until the courts have issued a judgment, and the Financial Ombudsman Service is suspending its work on the issue.

The banks involved in the action, which include Barclays, HSBC, Lloyds TSB, the Royal Bank of Scotland, HBOS and Nationwide Building Society, together account for around 90% of the current account market.

It is thought UK banks have so far paid out around £200 million in out of court settlements to customers who complained about the fees.

National Savings and Investments have launched an advertising campaign in a bid to reunite people with £435 million of lost savings.

The Treasury-backed savings group said it was trying to reunite people with money in accounts that have not been touched for 15 years.

It has around £239 million sitting in investment accounts and £196 million in savings accounts.

The campaign, which includes press, internet and radio adverts, is the first time the group has ever advertised its free tracing service.

The financial services industry has launched a major drive to reunite people with so-called dormant accounts ahead of Government plans to release the estimated £350 million to £500 million that has been untouched for 15 years and use it to finance community projects.

NS&I launched its tracing service in November 2001, and since then it has reunited 43,000 people with around £42 million.

The group said the most common reason people lost track of their accounts was because they moved house and did not pass on their new address to it, often because they had forgotten about accounts that had been opened for them as a child.

It added that other money had gone untouched because people had died and their executors had not realised they had an account with the group.

Peter Cornish, NS&I customer director, said: “We want to help reunite as many people as possible with savings they have forgotten they had invested with NS&I, or as we were formerly known, National Savings.

“We have launched an advertising campaign to jog as many memories as possible and the service is completely free-of-charge.”

Students are set to graduate with nearly two-thirds more debt than they are expecting, research has shown.

The average would-be student estimates they will rack up just under £8,000 worth of debt during the course of their studies, while parents think their child will end university life nearly £10,000 in the red.

But figures show that students graduating in 2006 had actually run up an average debt of £13,252, the Association of Investment Companies said.

Despite the shortfall, parents and children are being slightly more realistic than last year, when parents thought a student would graduate with debts of £6,849 and teenagers thought they would go just £6,190 into the red.

Just under a third of would-be students said they would live at home while they were at university to save money, and 31% planned to work. But 27% said they would be forced to take out a loan and 21% said they expected their parents to foot the bill.

A quarter of parents expected to have to pay for their child’s time at university, while 36% thought their child should work and 12% said they would have to take out a loan.

Around 93% of parents said they were willing to make significant sacrifices so that their child could go to university.

Six out of 10 parents said they would go without a new car to help them meet the cost, 53% would sacrifice holidays, and 36% would even put off early retirement. But 7% of those questioned said they would not sacrifice anything while their child was studying.

Despite the cost of university, 30% of sixth-formers are still planning to take a gap year, which is likely to set them back by around £4,000.

More than half said they would fund their trip by working their way around the world, 31% said they had saved money for it and 8% said they would finance it through borrowing.

Graduates are increasingly being squeezed out of the property market, with more than half unable to afford their own home, research has shown.

Around 56% of people who graduated from university during the past 10 years have yet to get on to the property ladder, 3% more than last year, according to Scottish Widows Bank.

Seven out of 10 of those who have yet to buy their own home said house prices were too high for them to be able to afford anywhere, while 58% claimed they did not earn enough.

Nearly one in five graduates claimed they would not be able to afford mortgage repayments if they bought their own place and 27% said they could not afford to save for a deposit.

Only 18% of those questioned said the reason they had not bought their own home was that they did not feel ready to make the commitment.

The problem of getting on to the property ladder does not just affect recent graduates, with a quarter of people who graduated 10 years ago still not owning their own homes.

The group found that the average price a graduate paid for a property was now £122,045, 14% more than last year, rising to £179,228 in London.

Debt is an issue preventing many graduates buying their first home, with students owing an average of £10,361 when they graduate.

Saving for a deposit is also a problem, with the average graduate first-time buyer putting down £16,666 towards their first home, with those in London finding £26,536.

One in 10 graduates said they did not think they would ever be able to afford to buy their own place and 4% thought it would take them at least 10 years to get on to the property ladder.

The Government is to seek a change in the law following a ruling by the Law Lords giving the legal all-clear to a tax reduction system used by thousands of husband-and-wife small businesses.

The Lords’ judgment came in a test case involving IT consultant Geoff Jones and his company secretary wife, Diana, who took on HM Revenue and Customs (HMRC) after he received a £42,000 back tax demand in 2003.

After two initial defeats, Mr Jones won his case at the Court of Appeal in December 2005, striking a blow for an estimated 30,000 other firms run by couples who save on their tax bills by drawing a large part of their separate incomes in the form of share dividends on which less tax is payable than on salaries.

The House of Lords dismissed an appeal by HMRC, effectively crushing the taxman’s hopes of recovering an estimated £1 billion in back tax - and leaving the Revenue with a £1 million legal costs bill.

But a Treasury spokesman said later: “This case has brought to light the need for the Government to ensure that there is greater clarity in the law regarding the tax treatment of income-splitting arrangements which are used by some taxpayers to achieve an unfair advantage over others.

“The Government will therefore bring forward proposals for changes to legislation to ensure that the principle of fairness is maintained.

“The Government’s intention is that genuine and commercial business arrangements will not be affected by this legislation and we will consult to ensure this is the case.”

A written statement to Parliament on the issue is expected on Thursday.

Mr and Mrs Jones, who run IT consultancy Arctic Systems, were backed by the Professional Contractors Group representing small businesses and said they were “absolutely delighted” with the ruling.

Latest data from the Nationwide Building Society shows house price growth stalling in July - the 0.1% increase giving a year-on-year rise of 9.9%. This contrasts sharply with June, when prices rose 1.1%, giving a year-on-year increase of 11.1%. The average price of a property in the UK now stands at £184,270.

Commenting on the figures Fionnuala Earley, Nationwide’s Chief Economist, says that after surprisingly picking up steam in June, house prices were almost unchanged in July, and their underlying trend growth resumed a downward path.

Earley adds that the Bank of England now faces a tough balancing act in the months ahead, with tightening consumer finances on the one hand and resilient economic growth on the other.

Fundamentals do suggest that household finances are coming under considerable pressure, and that house prices and consumer spending will both see a slowdown in the second half of the year.

She notes that a borrower looking to refinance a 2-year fixed rate mortgage from the mid-2005 to mid-2006 period is likely to bear nearly the full brunt of the MPC’s recent tightening in one go.

For example, a homebuyer who bought a typical flat at a 75% loan-to-value ratio in August 2005 would see a £78 increase in monthly payments when re-mortgaging, excluding the effects of any fees.

Assuming the borrower earns the UK average income, the payment shock from re-mortgaging would eat up about two thirds of the increase in monthly take-home pay that the individual has seen in the last two years.

“When the effects of inflation over this period are added, the squeeze on finances becomes even more acute and further highlights the risk of monetary overkill,” says Earley.

© Moneyextra.com

Just released figures from the BBA - the banking and financial services trade association - point to weaker mortgage approvals and subdued consumer credit.

June’s gross mortgage lending of £21.5 billion, the highest figure ever, was a reflection of strong re-mortgaging activity. This was, however, only 5% higher than a year earlier, suggesting that in real terms, lending growth is slackening.

There were 193,850 mortgages approved (for all purposes) in June; 8% fewer than in June 2006, with an aggregate value of £23.1 billion. The average loan approved for house purchase was £159,600, some 16% higher than a year earlier.

Meanwhile, underlying net mortgage lending (gross lending minus repayments and redemptions) rose by £5.4 billion, lower than May’s increase (£5.9 billion) but in line with the recent average.

The annual growth in net mortgage lending continued to stay around 14%.

Elsewhere, credit card borrowing fell by £0.1 billion (net) in the month, while borrowing on personal loans and overdrafts rose by £0.1 billion.

David Dooks, BBA director of statistics, says that although the trend in net mortgage lending is being maintained, approval numbers for house purchase are well down on this time last year, suggesting that market demand may be reacting to higher mortgage costs.

Spending on credit cards was lower than at the same time last year, reflecting weaker retail sales but the reducing appetite for unsecured borrowing continues the pattern seen over the last two years.

© Moneyextra.com

One in four Britons has incurred a penalty fee on their credit card during the past year, with people collectively paying out more than £230 million, a survey has showed.

An estimated 10.2 million people have been charged fees for being late with a monthly repayment or going over their credit limit, according to financial website moneysupermarket.com.

But despite the high number of people caught out, only 12% of credit card holders said they would like to see them replaced with a set monthly or annual charge.

Rob Kenley, head of credit cards at moneysupermarket.com, said: “Penalty fees still affect a significant proportion of the population and providers are raking in some hefty cash, even after the Office of Fair Trading-imposed £12 cap.”

But he said the survey suggested consumers would not respond well to the introduction of monthly or annual card fees.

He said: “If providers were thinking about introducing them, they would have to offer cardholders much more than simply replacing penalty fees.

“Even longer 0% introductory offers or higher cashback offers spring to mind as a starting point.”

Despite the majority of people claiming they care about the environment, half of Britons would not be prepared to pay a “green tax”, a survey showed.

Only one in five people said they would be happy to pay more tax on air travel, while 7% of people claimed they did not care about green issues at all, according to independent financial advice website Unbiased.co.uk.

But nearly a quarter of people said they would be prepared to pay more car tax if the money was used to reduce carbon fumes on motor vehicles, although 11% said they would most resent this tax.

A further 17% of those questioned also said they would not mind paying extra tax to tackle issues closer to home, such as littering.

People aged between 25 and 34 were most open to environmental taxes, with 24% saying they would not mind being taxed on air travel, while 63% of 45 to 54 year-olds said they would not be prepared to pay extra tax on anything to help the environment.

David Elms, chief executive of Unbiased.co.uk, said: “Tackling green issues is probably high on most consumer’s wish lists, yet in reality many are not prepared to reach into their pockets to help contribute to the cause, mainly because they believe they are paying too much tax already.”

Millions of Britons are suffering from PIN overload as they struggle to remember increasing numbers of the four-digit codes for credit or debit cards, according to a survey.

The average person has memorised at least two PINs, while an estimated six million consumers have learnt three different numbers and three million people have learnt four.

A further two million people say they are trying to remember at least five different numbers, according to high street bank Abbey.

Unsurprisingly 55% of people say they have recently forgotten one of their PINs, and 39% admit they have had to write down their numbers so that they do not forget them.

But while 23% of people say they have disguised their PIN, for example writing it down as if it was a phone number, 4% say they have taken no steps to conceal what it is. A further 6% of people even admitted they kept a record of their pins in their wallet with their cards.

Around 14% of people said they had avoided the problem of having to remember multiple PINs by having the same number for all their cards, despite the fact that this would make them vulnerable to fraud if their wallet was stolen.

Steve Shore, head of banking at Abbey, said: “With many of us holding more and more pieces of plastic in our wallets the challenge of remembering all those PIN codes is getting greater.

“But we really do urge you to try and commit them to memory rather than write them down. Otherwise it’s like signing a blank cheque for fraudsters.”