Banks carpeted for overcharges

DAVID FRANKS, an accountant, once had a most peculiar client. His bank was undercharging him.

Mr Franks is a partner in Blackstone Franks, a City accountancy practice which offers a special service to check whether businesses are being overcharged by their banks. He says that in four out of five cases they are, and the amounts involved can be substantial. Blackstone Franks recently saved a large firm of solicitors about pounds 150,000. In another case it found that a bank made 121 errors on a single account.

'We have found well over 1,500 instances of banks making errors which favour themselves,' he said. 'The difference between what the banks say and the service they deliver is as big as the Atlantic Ocean.'

Suspected overcharging is angering many small and medium-sized businesses struggling in the recession. The Bank Action Group, formed from dissatisfied customers, recently met Bank of England officials to argue for tighter supervision. MPs from all parties have signed a motion calling for Parliament to debate the issue.

A growing number of computer programs that check bank charges are now on the market. Blackstone Franks, however, sticks with old-fashioned methods. It employs two retired bank managers armed only with paper and pencil, who know the tricks of the trade. Mr Franks argues that computer packages often fall down on some complex aspect, such as the timing of cheque clearance. The accountancy firm launched the service two-and-a- half years ago after discovering a nursing home it was auditing had been overcharged pounds 20,000 because of errors with interest rates. The bank promptly admitted it had happened in previous years, and refunded pounds 60,000.

Then Blackstone Franks checked its own account and found it had wrongly been charged interest at the unapproved overdraft rate. It reclaimed pounds 5,000. Since then, said Franks, it has saved its clients millions of pounds.

The service was originally 'bankbusters', but Mr Franks now prefers the less provocative 'banking review'. Designed mainly for businesses with an annual turnover of more than pounds 2m, it charges on results - 50 per cent of savings in the first year, 30 per cent in the second, plus administrative charge.

The reaction from the banks was unenthusiastic. Richard Whitehead of Lloyds was not surprised that Blackstone Franks almost invariably found overcharging rather than undercharging. 'If you think you're being undercharged, you wouldn't pay someone to look into it for you,' he said.

'Anyone who suspects a problem would save themselves a lot of time and money by contacting bank managers directly, rather than dealing with a third party,' he added.