The latest on Bank Charges
Bank Charges is a very hot topic. The banks are currently raking in an estimated £5bn a year in overdraft charges. If you don’t have an arranged overdraft facility and you go into the red, or if you breach your agreed overdraft limit, you are using something the banks would describe as an ‘unauthorised overdraft facility’. It has been said that 1 in 4 people have used an unauthorised overdraft in 2007.
The banks argue that an ‘unauthorised overdraft’ is a facility that has not been arranged in advance, so they are entitled to charge a fee for this service. The fact is, is that the bank have been charging us for a number of years, under different names, which merely represent ‘penalty charges’ to the customer. The banks old terms and conditions state that a ‘charge’ will be made if you break the terms of the arrangement – i.e. go overdrawn.
With the banks still operating a 3 day clearing system, this means that now we operate in a fast paced society of direct debits and standing orders, internet payments and buy now,- pay later attitudes – the banks now have ample opportunity to rake in billions in ‘penalty charges’.
You may ask why the banks in today’s world cannot operate a day 1 for 2 or even same day clearance system? The reason would be that we would all have ample opportunity to understand our finances a lot easier and they would lose in two respects. They would lose interest on these payments as well as the opportunity for people to dip into an unauthorised overdraft.
The banks have argued the following:
- We are recovering our costs
- We use these charges to provide ‘free banking’ to all
- These are fees for a service our clients have requested
All 3 arguments are flawed. The fact is, the banks never expected (and have admitted so) a consumer revolution on this scale. The revolution was created by the internet and people whom were disgruntled coming together and hitting the banks together. They were systematically drained of their ‘service fees’ by consumer getting a refund. The banks have maintained a position and have never defended a County Court case, despite having ample opportunities to do so.
The Law behind this
The core argument is that banks should only impose charges that reflect and are in proportion with their actual costs of rectifying the breach of contract. Contact Law in the UK stipulates that a ‘contractual breach’ should only be rectified with the losing party recovering their liquidated loses. A report by a Professor of Banking has estimated this cost between £2.50 and £4.50 – some way off the average charge of £35.00.
What Bank Charges Can I Claim back?
You can claim back any unfair charges, which the law would class as a penalty, which you have been charged over the last 6 years. In some cases we can also get you the interest that you have paid on these charges. The Court allows 8% statutory interest on bank charge claims if they are concluded with the requirements of the Courts.
Banks did not want to go to Court regarding bank charges, as this could have resulted in judgement where the banks were forced to repay all the charges that have been levied.
In the end, the sheer number of Court claims against the banks, plus the monies they were losing, meant the banks had no alternative other than to try and defend their position on bank charges, despite 1000’s of previous cases they could have defended. The resulted in the ‘Test case’ which means that the banks bought some breathing space and could understand the impact that this has had on their finances and allow them time to understand how future revenues may be earned.
The Office of fair Trading – BANK CHARGE TEST CASE
On Friday 27th July the Financial Ombudsman and the FSA suspended all bank charge cases and permitted the banks to waive all new complaints until the outcome from the High Court test case commencing on the 14th January 2008. It is expected that a judgement will be given around July 2008. This should clarify once and for all, either way, whether these charges are fair or not.
