How to reclaim bank charges
If you’ve ever exceeded your agreed overdraft limit, or had a direct debit bounce, then you’ll have first-hand experience of bank charges. These are fees levied at current account customers, and can be as high as £39.
Bank charges have been in the news for several years, but especially since 2007 when the Office of Fair Trading (OFT) brought a test case to the High Court for the right to apply consumer contract regulations to bank charges and decide whether they are fair or not.
Since then the issue has been a matter of fierce legal debate. Despite the High Court finding in favour of the OFT, the seven banks and one building society involved in the test case appealed and the Court of Appeal was brought in.
On 26 February 2009, The Court of Appeal gave its verdict and quashed the banks’ appeal.
However, on 1 April the House of Lords gave the banks permission to appeal again.
Are charges too high?
Research carried out by the OFT suggests that charges are too high - since the beginning of 2006, thousands of customers have tried to reclaim charges that can be as high as £39 when an agreed overdraft is exceeded or a direct debit or cheque bounces. The OFT believes the extortionate charges do not reflect the true cost incurred by the banks, which is thought to be as little as £2.50.
If it is granted the right to take action on bank charges, then it is expected to cap these and demand the banks refund those they have penalised in the past.
So will I get my money now?
At the end of 2007, the Financial Services Authority (FSA) put a waiver in place removing the obligation for banks to deal with complaints and refund requests surrounding unauthorised bank charges until a final decision was reached.
This waiver was recently extended until January 2010.
However, if you have been hit by these charges, then you can still write to your bank or building society asking for your money back. Unless you can prove you are suffering financial hardship (see below), you will probably be told that no refunds will be given until the waiver is lifted. However, the earlier you get your request in, the sooner you should receive a refund once the waiver has expired.
The first thing to do is determine how much you can claim. You should be able to claim back bank charges from the past six years – as the FSA put the waiver in place back in 2007, this technically means you can claim back to July 2001.
Using the template letter below, ask your bank or building society to send you information relating to all default charges from over this time. Bear in mind you’ll have to pay a £10 fee for this information.
Then, use our second template letter to put in your request for a refund.
Financial hardship cases
The FSA has told banks they must continue to process claims where a customer is suffering genuine financial hardship. Unfortunately, there is not an exact definition of what constitutes financial hardship but, generally speaking, if you are struggling to meet your financial commitments (including the cost of living) then you could qualify.
Example of changes in lifestyle that could have pushed you into the financial hardship category include:
Loss of employment
A serious illness
Taking a carer break to raise a family
Starting full-time education
Speak to your bank about your situation and see if it is able to help you.
An overdraft is an agreement with your bank that authorises you to withdraw more funds from your account than you have deposited in it. Many banks charge for this privilege either as a fixed fee or charge interest on the money overdrawn at a special high rate. Some banks charge a fee and interest. And other banks offer a free overdraft but impose very high charges for exceeding the agreed limit of your overdraft.
The Financial Services Authority is an independent non-governmental body, given a wide range of rule-making, investigatory and enforcement powers in order to meet its four statutory objectives: market confidence (maintaining confidence in the UK financial system), financial stability, consumer protection and the reduction of financial crime. The FSA receives no government funding and is funded entirely by the firms it regulates, but is accountable to the Treasury and, ultimately, parliament.
An account opened with a clearing bank (few building societies offer current accounts) that provides the ability to draw cash (usually via a debit card) or cheques from the account. Some pay fairly minimal rates of interest if the account is in credit. Most current accounts insist your monthly income (salary or pension) is paid directly in each month and they offer a number of optional services – such as overdrafts and charge cards – which are negotiable but will incur fees.
This is a mutual organisation owned by its members and not by shareholders. These societies offer a range of financial services but have historically concentrated on taking deposits from savers and lending the money to borrowers as mortgages, hence the name. In the mid-1990s many societies “demutualised” and became banks. One academic study (Heffernan, 2003) found demutualised societies’ pricing on deposits and mortgages was more favourable to shareholders than to customers, with the remaining mutual building societies offering consistently better rates. In 1900, there were 2,286 building societies in the UK; in 2011, there are just 51.