OFT tells banks to pay out interest

JAMES DOW

HIGH street banks were yesterday told by the Office of Fair Trading to stop pocketing the millions of pounds of customers’ money they earn by not making certain interest payments.

When consumers make standing order, telephone banking and internet payments, money is normally removed from their accounts and held by the bank for two days prior to it arriving in the recipient’s account.

This money can be invested by the bank to earn additional revenue over the two-day period. The OFT said: "We are calling for customers to continue to receive interest on interest bearing accounts until the money is credited to the payee’s account.

"Alternatively, if the customer making the payment is overdrawn or will become overdrawn as a consequence of making the transfer, they should not be charged overdraft interest."

With cheques, funds are available to the receiving bank on the second day following the day of deposit.

The OFT is calling for interest to be paid, where applicable, from this day at the latest.

OFT chairman John Vickers said he was launching a review of the banks’ practice. And he called on the high street lenders to "self-regulate" by publishing clearer information to customers about when they pay interest on money transfers.

The watchdog believes non-payment by the banks is costing consumers some £30 million a year - a trifling amount compared to the mega-profits recently announced by the likes of Royal Bank of Scotland and HBOS.

Vickers has set down his recommendations in a letter to Professor Elaine Kempson, as part of her 2004 review of the UK Banking Code. The Consumers’ Association, meanwhile, said it will go beyond Vickers’ demands in the changes it recommends to Kempson.

"We would say that in this day and age, with all the technology we have, transactions should happen instantaneously," a spokesman said.

The banking industry is already committed to addressing the flaws that have been raised by the Treasury select committee. A "summary box" of charges will be included on credit card literature by March 2004, and this will be incorporated into the Banking Code.