MIKE DAILLY

The credibility of UK banks has plunged deeper than Dante's Inferno. The shoddy lending practices of "sub-prime" specialists in the US witnessed a historic crash this year with consequential instability in the UK. With the crisis in full swing and the Northern Rock mooching a bail-out from the UK taxpayer, a journalist - posing as a first-time buyer - was offered a mortgage six times his salary from the Rock a few weeks ago.

The greed doesn't stop there. Banks have been generating huge profits from the widespread mis-selling of payment-protection insurance, rip-off mortgage exit fees and unfair bank and credit card charges. How many people now trust their high-street bank for financial advice? Without charges there will be no free banking, say the banks. Having set up the false premise, they pose a divisive question: should free banking be subsidised by fees charged to those who default?

Who says UK banking is free? Consider the evidence. A UK consumer backlash, led by free online communities such as moneysavingexpert.com and consumeractiongroup.co.uk has seen banks forced to repay hundreds of millions of pounds in unfair bank-charge refunds. The banks were haemorrhaging so much cash they needed the Office of Fair Trading (OFT) to sue them as an excuse to put a stay on consumer claims across the UK.

The British Bankers' Association (BBA) chief, Angela Knight, has justified bank charges by announcing that "people don't like parking tickets either, or speeding fines". True, but it was a democratically-elected parliament that introduced traffic fines for public health and safety reasons. Who gave the banks the power to fine people? When the bank charges campaign first gained momentum in 2006, the BBA argued that charges reflected actual cost.

I debated this issue with the BBA's former chief, Ian Mullen, on BBC Radio 4's MoneyBox in February 2006. Mr Mullen claimed that every time a transaction was declined there was a bank employee sitting in an office somewhere in the UK, on a 24/7 basis, looking through a customer's file and deciding what to do - in other words it really did cost £39 to send a letter. As most charges were automated computer-generated letters, this argument was nonsense.

In 2007, the banks embraced a new defence: the "service fee". Many banks have now changed their contractual terms and conditions so that "charges" are replaced with "fees" for a "service". This is the banks' core defence to the OFT's test case which will hear preliminary legal argument at the High Court in London over eight days in January.

Consider what happens when you go over your overdraft limit. You have a direct debit due to come off tomorrow. It will come off at midnight. If you have insufficient funds the bill will not be paid and this will be handled by the bank's computer system - just like the hundreds of millions of automated banking transactions that take place every year in the UK.

Yet with the substitution of a few words, the banks now say any transaction exceeding an agreed limit is an "informal request for a new overdraft". In considering whether to grant this request they will charge a fee. The typical fee for a nanosecond of computer time to reject your payment is £39. Can duplicity and doublespeak sink any lower?

Let's scorch a few myths. First, UK banking has never been free. Most ordinary citizens will have paid for banking services a thousand times over in rip-off scams and charges. Secondly, "fees" charged to those in default are not designed to pay for the "costs" of universal banking. They are designed to generate obscene profits - a mark-up of 1560% per transaction to the bank (based on a conservative baseline cost of £2.50 for a charge levied at £39 per item).

There is incontrovertible proof. While UK inflation over the past decade has been low - between 1.5% and 3.2% per annum between 1996 and 2006 - consider the trend for UK bank charges. In 2003, Halifax Bank of Scotland's (HBOS) standard bank charge was £20 per item. In 2004 it jumped to £30, and to £39 per item in 2005. Meanwhile, the monthly charge for an unauthorised overdraft rose from £15 in 2003 to £28 from 2004 onwards.

These increases represent real-money increases of 95% and 87% as against inflation of 5.9% and 2.9%, respectively. The icing on the HBOS cake is the fact it charges £6 per bank charge letter in the Republic of Ireland as against £39 in the UK. The banks have treated the British public with contempt. Who pays the most bank charges in our society?

Low-paid, hard-working families and individuals, citizens on welfare benefits, and people who have fallen ill or are going through painful relationship breakdowns.

Why is this important? Try getting your salary, tax credits or welfare benefits paid without a banking account. Banking is now an essential service - like water and electricity - and the banks have a monopoly. It is not right to exploit the vulnerable to generate ever increasing profits.

We need UK law reform to protect these citizens and the Financial Services Authority must lift its claims waiver early next year so that bank-charge complaints can be processed and people can obtain refunds.