Julian Knight: Handbagging aside, the banks still have to sort out fees

With the High Court case into the legitimacy of current account charges a matter of weeks away, the two parties – the banks and the Office of Fair Trading (OFT) – are at each other's throats.

The OFT in its submission to the court has flatly rejected the banks' argument that the fees they impose on customers who go into unauthorised overdraft are a payment for a service. In fact, the OFT agrees with consumer groups that charges should reflect the true costs to the bank of the customer going overdrawn, rather than have an element of penalty.

John Fingleton, head of the OFT, which has a lot resting on the case, even possibly its continued existence, then went on TV setting out the argument. This prompted an immediate broadside from the British Bankers' Association (BBA), headed by the forthright Angela Knight, which accused the OFT of making public statements that could be "prejudicial" to the case.

This may seem like handbags at dawn stuff but it is important because, regardless of the outcome of the case, the banks and the OFT are going to have to come to some sort of accommodation over charges eventually. The banks for one have to understand that even if they win what's bound to be a long drawn-out case, a return to the era where consumers simply shrugged their shoulders when hit with charges isn't an option.

If the banks lose and carry out their thinly veiled threat to start imposing regular current account charges on all customers, then that too would infuriate the millions who keep their accounts in good order. Make such a brazen step and the banks could be open to charges of collusion. Ultimately, only the most rabid anti-charges campaigner wants to see a situation where customers have carte blanche to go into the red without permission and without fear that they are going to face a financial hit.

What has to come out of all this is absolute clarity over charges: they have to be proportionate, there has to be a cooling-off period before charges kick in, and the practice where one fee triggers another and so on, sending the consumer into a debt spiral, often for only a small initial transgression, has to stop. We need a fair deal, not a war of words.

Crunch at Christmas

The credit crunch, it seems, still has a long way to run. Despite Barclays announcing lower-than-expected losses from its exposure to the US, the bad news is still outweighing the good. Warnings came last week that the US credit card market is set for a surge in defaults. Meanwhile, Northern Rock has now been lent the equivalent of Britain's annual defence budget and there are rumours that at least one other UK bank may be about to ask the Bank of England for loans in order to keep its mortgage business afloat.

In the run-up to Christmas, consumers may get a taste of worse times to come. Mortgage rates are on the rise, despite the next base rate move by the Bank of England almost certain to be down. Credit card limits are being trimmed, and as The Independent on Sunday reported last week, tougher credit checks for mobile phones, catalogue and store cards are being imposed.