Rising Bad Debt Could Mean the End of Free Banking in UK

Rising bad debt and industry restrictions may finally kill the UK?s access to free banking.

Despite its announcement of booming profits this week, HSBC said it was experiencing increasing numbers of borrowers reneging on their repayments, and a spokesman later stated it may need to consider charging customers for their current accounts.

“Banks are clearly feeling the heat from increased scrutiny over their charges ? the impact of the Office of Fair Trading?s recommended reduction in credit card penalty fees from an average of £22 to £12, said Richard Mason, director at price comparison website www.moneysupermarket.com. “They are also experiencing the need to tighten lending criteria as a result of burgeoning bad debts.”

“The resulting impact will be further cost for the UK?s 31 million current account customers who are long-used to free banking. Not only will it be a sad day when banks decide to charge for running the most basic and necessary of financial products ? there may also be a backlash for the first institution brave enough to introduce the charge.

“The contradictory aspect of HSBC?s suggestions about charging for banking, is that it comes on the same day it announces profits of £6.7bn. Not only this, but there seems no sign of a decrease in other punitive charges.

“Moneysupermarket.com research recently revealed that bank customers in general face a minefield of more than 100 penalties which exist across the most common five financial products. The OFT has tackled just one of these and already we are witnessing a knock-on effect.”

Despite the huge forecasted profits for the big banks, it would seem bad debt provisions are increasing too. With UK personal debt growing at a tremendous rate ? reaching £1.19 trillion at the end of April 2006 ? paying for banking will be just another blow in an environment where debt appears to be on the cusp of becoming unmanageable.

With these prospective charges of bad debt and the loss of free banking in mind and the fact the big four banks are notorious for offering mostly uncompetitive financial products, consumers would be well advised to review the products in their financial portfolio. These banks often rely on consumer inertia to boost their profits, so consumers should review their mortgages, personal loans, credit cards, savings and current accounts on sites like moneysupermarket.com to ensure they are benefiting from the best deal available.