Final victory for banks as OFT fails to impose limit on charges

Britain's biggest banks were yesterday given the green light to continue charging hugely controversial penalty fees after agreeing a deal with regulators that was branded "flaccid" and "weak" by consumer groups.

The Office of Fair Trading said it did not now plan to introduce a maximum cap on the penalty charges incurred by customers who breach their overdraft limits, insisting instead that new commitments it had secured from the banking sector would protect consumers.

The deal means banks can continue levying their current charges – in some cases as high as £35 for customers who go just a few pence over agreed overdraft limits – and will give the industry further ammunition as it seeks to dismiss millions of claims for refunds of such charges made in the past.

The OFT's announcement marks the end of a two-year investigation into current accounts which has already seen it lose a legal case over whether it is entitled to rule that banks have behaved unfairly by charging customers so much for overdraft breaches.

Last night, the regulator claimed "real progress is being made towards personal current accounts that work well for consumers", but campaigners accused the OFT of failing customers.

Martin Lewis, founder of MoneySavingExpert.com, one of the campaigners against unauthorised borrowing charges, said: This is a flaccid document and a complete waste of a chance to improve things for consumers."

Mr Lewis said the OFT had effectively failed consumers twice. "When the OFT decided not to go on with the bank charges test case, even though there were still legal routes to follow, we held off being too critical as it was still due to report on market conditions," he said. "But this really is beyond the pale: even with a near nationalised banking sector, no one will take them on."

Adam Phillips, chairman of the Financial Services Consumer Panel, added: "The OFT's response today is weak: it relies on banks improving themselves, when they have patently failed to do this in other areas in the past."

A spokesman for Consumer Focus said: "This settlement still leaves consumers vulnerable, with no firm commitments from the banks."

The OFT insisted that the deal would produce real benefits for current account holders. It also said it expected competition between banks to ensure that the terms and conditions on current accounts continued to improve.

The banking sector has given a series of commitments on charges, including a promise that customers will be given better tools with which to monitor their balances, as well as the right to opt out of being allowed to get into an unarranged overdraft. John Fingleton, chief executive of the OFT, defended the agreement, pointing out that the average penalty charge for customers with an unauthorised overdraft had fallen from £34 in 2007, when the regulator began its inquiry, to £17 today.

"The commitments agreed by the industry today, along with changes by individual banks already made or expected in the next two years, should lead to a market that works better for consumers," he said. "We will continue to closely monitor the banks and will reconsider the need for action, including legislation, if they fail to deliver these changes."