'Unfair' bank charges to be banned, government proposes

An end to "unfair" bank and other financial transaction charges are among the new policies that have been set out by the coalition government.

Last year, the Office of Fair Trading suffered a high profile legal defeat in its attempts to regulate bank charges.

The government's plans also include powers to ban "excessive" interest rates on credit and store cards.

Among the other measures are a promise to give homeowners more protection against "aggressive" bailiffs.

Courts will also be told that repossessions must always be a last resort.

Under another proposal, people taking out a store card for the first time will be given a seven-day cooling off period, which is aimed at stopping some people getting into debt in the first place.

Marc Gander of the Consumer Action Group, a leading campaigner on bank charges, welcomed the government's commitment, but said it would be important to see the detail.

"It [the government] does not define 'unfair' or say what protections will be granted overall," he said.

Martin Lewis of Moneysavingexpert.com also welcomed the new policy.

"I expect pressure, especially on the state-owned banks, to sharply reduce their charges," he said.

"If they don't play ball, the government needs to legislate to make this happen."

The British Bankers' Association played down the implications of the government's threat.

"The OFT has already looked into bank charges and in March this year reported that 'real progress' is being made by the industry in making current accounts work well for customers," said a spokesman.

"Competition is driving down the cost of other accounts that provide a whole range of different features as part of the package," he added.

The expanded policy programme of the new government adopts two policies that had already been set in train by the previous Labour administration.

Firstly, there will be a free national financial advice service. A similar policy was announced in March after three years of planning and pilots.

The version being suggested by the coalition will be funded by a new levy on the financial services industry, rather than by the government and the Financial Services Authority as planned by Labour.

Secondly, the coalition will also halt the ability of creditors to get a court order allowing them to seize and sell the homes of borrowers who have unsecured debts.

In February, the Ministry of Justice said it was looking at setting a minimum level of debt before a court order could be obtained.

Now, the coalition government says it will ban court orders for the sale of properties where the unsecured debt is below £25,000.

The coalition programme adds some extra pension policies to those first announced by the new government on 11 May.

It says it will look at giving people "flexibility" to get their hands on part of their personal pension pots early - in other words drawing lump sums to spend before retirement.

And in response to pressure from the pension industry, the government says it will "simplify" the rules and regulations that surround pensions to "reinvigorate" company pension schemes.

This is usually taken to mean relaxing the current requirements to offer spouses pensions and some form of index-linking, to make final-salary schemes less expensive for companies to fund.

Joanne Segars, of the National Association of Pension Funds, said the government should be very cautious about letting people have early access to pension savings.

But she welcomed the idea of genuine simplification.

"There have been 800 changes to pension regulations since 1995 - flexibility will slow the exodus from defined benefit schemes in the private sector we are seeing at the moment," she said.