We explain the latest developments in the bank charges saga - find out why you shouldn't wait to place your claim.
Bank Charges Update:
After losing their battle at the Supreme Court, the OFT have admitted defeat and dropped their fight against banks and building societies over unauthorised overdraft charges. This means that for the time being at least it's unlikely that you'll be able to claim anything in the way of compensation whether you had already lodged a claim or were planning to do so in the near future. The only exception to this is genuine hardship cases as banks will still be required to look into these cases and respond fairly.
That said, it is possible that there may be another route via which you can appeal to banks for a refund of any charges levied for use of an unauthorised overdraft. We are looking carefully at your options and will let you know as soon as we have more information. Sign up to the money.co.uk newsletter so that you are among the first to hear about any developments.
The OFT will also be entering into discussions with banks and building societies that will hopefully result in legislation being passed to ensure that they take a more reasonable approach to applying penalty charges. Again, we'll bring you news of any developments as soon as they occur.
It’s an issue that most of us will have followed with interest since the Office of Fair Trading announced its intention to investigate certain bank charges, sending a clear signal that it believes some charges are disproportionately high and unfair. Now a long and convoluted legal process has moved us all a step closer to reclaiming our money, so it’s worth looking in detail at the issue again.
What is the problem with bank charges?
In essence, nothing. Banks are always going to levy charges in certain circumstances – for instance going over your agreed overdraft limit. However, the issue is with the size of the fees, which most people believe are too high – and far higher than necessary if they really are just ‘administration fees’ as the banks claim. The fact is that unauthorised overdraft and similar fees have become a significant source of income for the banks, and horror stories about the inflexible and downright silly application of charges are far too common.
How did the refund issue get started?
The bandwagon first started to roll when the Daily Mail launched a campaign to help readers reclaim their fees. That led many people to ask the banks for their money back, eventually in court. But since the banks were unwilling to set a legal precedent (in case they lost), they simply declined to argue cases in court. As a result, thousands of people successfully recovered their bank fees, which saw the banks pay out almost a billion pounds in refunds. At that stage, the OFT got involved, agreeing to pursue a test case in the High Court, to establish whether the fees are legal, or whether customers are entitled to refunds. That case has been rumbling on ever since, and has now emerged from the High Court with the OFT’s right to review the fees intact.
So, can I reclaim my bank charges?
Yes and no. That is, whilst the OFT emerged from the High Court victorious, the banks still have an option to take the case to the House of Lords for a final appeal – given the scale of the claims they will face if they lose, there is no doubt that they will appeal. As things stand, however, the OFT has the power to investigate and is all but certain to find that the charges are unfair. When or if that happens, it will be open season on bank charges. But, there is still a sticking point. That is, whilst the banks have remaining legal options, the Financial Services Authority has given them permission to put all claims on hold.
As things stand, then, few* further claims will be processed by the banks (or the courts) until OFT versus the banks is resolved – and there are plenty of claims in the queue.
*There are some exceptions, such as people in genuine financial hardship.
Can’t I join the queue?
Yes, you can, and in fact it is probably a sensible course of action since it costs nothing to do so. The sooner you put your claim in, the sooner it will be dealt with if and when the banks are forced to pay out. If you do proceed with a claim, then your case will be put on hold, but you stand a better chance of beating the rush should the floodgates open.
OK, so how do I claim?
It’s actually, quite a simple process, so it clearly hasn‘t been designed by the banks...
Here is what you need to do:
1. Stick to your guns:
First of all, remember that the banks will attempt to stall you and put you off at every opportunity. Don’t fall for it, thousands of people have successfully reclaimed fees so the banks are on a sticky wicket and they know it.
2. Work out what you could reclaim:
If possible, go through your old bank statements to spot the charges you may be able to reclaim. Normal account charges are not part of the issue, so look out for any ‘penalty charges’ like unauthorised overdraft fees and fees for ‘bounced cheques’. If you do not have your statements, don’t worry. You can request under the Data Protection Act that your bank provides a list of account charges going back six years. Write to your bank to ask for a list of all charges, detailing what the charge was for, the date and the amount, under the Data Protection Act. Your bank is obliged to reply within 40 days and may not charge more than £10 for the information. Don’t allow your bank to charge you more by insisting that you pay for full bank statement – you are entitled to this information in law.
3. Write again to your bank, this time asking for your money back:
This should be your first move, particularly whilst the process remains on hold. It’s important that you set out the correct information in your letter, so use a template like this one.
4. See how your bank responds:
If you don’t get a response of any kind within two weeks, write again and follow up with a phone call. Your bank may try to bluff by saying that the charges are not illegal. Again, don’t be put off – stand your ground and insist that your claim is dealt with. The best result here is for your bank to simply refund your charges, or in some cases, offer you a partial payment. At the moment, the most likely response is to acknowledge your claim, but point out that they are not obliged to deal with it until the FSA lifts the hold on the process.
5. What if my bank refuses to acknowledge my claim?:
At this point it is time to think about legal action. Many people are put off by the thought of taking a huge, powerful bank to court. Don’t be, the process is reasonably straightforward and in many cases the bank will pay up before any hearing can go ahead, or will simply fail to show up in court – either way, you win. Again, however, remember that in most cases the court will not hear your case whilst the claims process is on hold. You can lodge a claim at the County Court, either in person or online - for more information, visit www.hmcourts-service.gov.uk/infoabout/claims/index.htm. You should also think about registering with the Consumer Action Group, which is a useful source of information and advice on making a legal claim.
6. Again, see how your bank responds: In many cases, the bank will fold at this point and offer at least a partial settlement – it’s obviously up to you whether you should accept a partial settlement or fight on for the full amount. If the bank simply ignores your claim for 14 days you will win by default. Be aware that a favourite trick of the banks is to enter a defence at the last minute. This is designed to intimidate you, but don’t be put off – the few cases that the banks have fought and won have usually been down to poor preparation on the claimants part. If you have followed the steps above, you will have a very strong case.
7. The bank's defence:
According to Consumer Action, it is very unlikely that any bank will go this far. If it does, you will be sent a court questionnaire, which you must complete and return within a week. Do so, and send a copy to your bank, so it can see you are not going to back down. At this point, the bank usually sees sense, failing to turn up in court and allowing you to win by default.
8. Getting your money back:
Not surprisingly, the banks are often far slower to give money back than they were to take it in the first place. If your bank doesn’t pay up, you have the right to send in the bailiffs. You can do this very easily, via the MoneyClaim website.
9. Remember that this situation is changing all the time:
As the banks’ appeal process rumbles on, the process will remain on hold for most people. That shouldn’t stop you entering a claim, but it is definitely worth checking on money.co.uk from time to time, and signing up to the money.co.uk newsletter to ensure that you're kept right up to date with developments as and when they occur.
10. In future, avoid bank fees:
The best way to avoid charges in future is to manage your money effectively. Bank charges won’t go away altogether, though it is likely they will be reduced across the board. To avoid paying fees, avoid unauthorised overdraft and ‘insufficient fund’ situations.
