Bank charges – are we finally winning the fight?

The row over bank charges in the UK has been raging for some time after campaigners and regulators in the UK labelled these charges ‘unlawful’ and ‘unfair’. The charges are those that have traditionally been applied by banks when a customer exceeds his or her overdraft limit – or goes into the red if there is no overdraft facility subject to any buffer that is in place – and for bounced cheques or returned direct debits. The cost of these charges has been rising over the years, and today banks charge up to £40 per fee in some cases, which can quickly send the customer spiralling into debt.

The argument stemmed from the fact that campaigners claim the actual administrative charge to the bank for such account problems is between £2.00 and £5.00, which means that in some cases bank customers are being charged ten times the cost that the bank incurs, and the banks are therefore making a tidy profit on these charges, which they are not supposed to do. A similar move took place with credit cards last year, where a ceiling limit of £12.00 per charge was enforced by financial regulators, whereas some credit card companies had been charging in excess of £30 per fee previously for late or missed repayments and for exceeding the card’s credit limit.

Since the row over bank charges erupted many customers throughout the UK have been urged to contact their bank and reclaim and charges that were applied to their accounts over the past six years. As a result of these claims the banks have had to pay out millions of pounds in past bank charges, although they still continue to apply the charges to customers’ accounts. Many customers have managed to reclaim their charges simply by writing to their bank, whereas others have had to enlist the help of the courts or the Financial Ombudsman Service in order to get their charges back.

As envisaged, the banks were not at all happy about repaying these charges, and for some customers reclaiming their past charges has been something of a struggle. In fact, in a couple of cases, where the case has gone to court, the judge has ruled in the bank’s favour, and Lloyds TSB actually won a couple of cases where customers had taken it to court over bank charges. In spring of this year it was decided that the only way to sort out the row over bank charges was through a test case, which could then be used for future cases against banks.

However, a recent move by Lloyds TSB has led some people to think that perhaps the consumer has, to some extent, won the fight against bank charges. Although the bank has no plans to get rid of these charges altogether it has announced that it will be reducing its charges, which is good news for customers that find themselves in the red more often than not. It is also thought that many other leading banks will not follow suit, as is usually the case, and this could see the row over bank charges finally coming to an end.

In a recent announcement Lloyds TSB stated that it was making changes to its bank charges in a bid to help the customer. In fact, one official from the bank stated: “We want to help our customers avoid accidentally slipping into the red and are giving them the tools to do just that. We understand that it can sometimes be difficult for customers to keep tabs on their account and we want to make it easier.”

Lloyds TSB, which has already repaid around £36 million in reclaimed bank charges in the first half of this year, has announced that it will be cutting the cost of unauthorized use of an overdraft from £30.00 per day to £15.00 per month plus between £6.00 and £20.00 per day depending on the overdraft size. For bounced cheques the charges will be reduced from £35.00 to £20.00, reflecting a significant reduction. If other banks follow suit many consumers could find that their monthly charges are cut considerably, as many are hit with a number of charges each month for not managing their account properly.

No doubt that Lloyds TSB, like other banks, will continue to be hit by claims for bank charges, but in the meantime its gesture to help customers by cutting bank charges will be welcomed by customers and campaigners alike. However, if it is true that the actual administrative cost to the bank is just a few pounds it is likely that Lloyds, and other banks that decide to follow suit, will have to cut charges by far more than this in order to bring the flood of bank charge claims under control.