Bank Charges

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Bank charges are always in the news and never more so than with the recent decision that made Lloyds TSB the first bank to win such a case. The district court found that on the available evidence (which did NOT include a copy of the contract) Kevin Berwick’s claim for more than £2,500 was unjustified. So should consumers be worried by this and stop reclaiming bank charges? Not at all, say all the consumer organisations, because set against this one case are thousands of successful claims against banks for unfair charges.

Bank charges mean big money for banks. They are also a trap for those unwary customers who fail to read the terms and conditions that apply to their current account. Recent research has suggested that about 41 per cent of people do not know the interest rate that applies to an unauthorised overdraft. What is more, 19 per cent of people are always overdrawn. Whether you write a cheque when there isn’t enough money to cover it or take slightly too much out at the ATM, the banks will charge you – and the charges will be costly. A Which survey suggested that overdraft charges of £4.7 billion were paid by 43 per cent of current account holders last year.

Are Bank Charges Unfair?

But are banks right to charge us for going overdrawn? Well, it depends on how you see the charges. The issue here is whether banks charges are allowed under your contract with the bank or whether they are really penalty charges. That’s what makes the difference between fair and unfair charges and it’s why so many courts have found in favour of the consumer.

Here’s the deal. When you open a bank account, you enter an agreement or contract with the bank. That agreement includes certain charges that the bank may apply. Under the law, the bank is allowed to impose charges that reflect the amount they will lose in certain situations.

That means that banks can charge if you borrow money without agreement, for example by exceeding your overdraft or by writing a cheque that cannot be covered by the funds in your current account. If a cheque or direct debit has to be returned, the bank can charge for the cost of this process. If you fail to make the minimum payment on your credit card, the bank can legitimately charge you for this. The bank is also allowed to charge for the cost of letting you know what has happened in these cases.

The True Cost Of Bank Administration

Of course, the question is how much these administrative processes cost the banks – and most of the banks are not telling. While banks are happy to talk about their latest deals and offers, they keep very, very quiet about administrative charges. That’s why other bodies have done the work for them.

Here’s what a bank would typically charge if you exceed your overdraft limit by £20:

  • You would get a letter (£35) informing you of this fact
  • You would be charged an unauthorised overdraft fee (an average of £28)
  • You will be charged interest on the unauthorised balance (about 30 per cent APR)
  • These costs can soon add up but compare that with the estimated cost of sending a computer generated letter with a franked stamp. That’s somewhere between £2.50 and £5. It’s no wonder that some researchers estimate that banks make a profit of 417 per cent over the actual cost of recovering the money they are owed.

And that’s why consumers are winning so many cases. With that sort of profit margin, the charges imposed by banks are just plain unfair and more and more consumers are protesting about what they see as daylight robbery. According to recent research 65 per cent of British current account holders have disputed charges on their accounts and 48 per cent of them have received refunds. That’s more than 9 million people, so reclaiming bank charges has got to be worth a try.

How To Get Your Money Back

So, how do you go about getting the bank charges back? Well, there’s a process you can follow that has proved successful for many consumers. You can even reclaim unfair bank charges over the past six years as long as you have the evidence to back up your claim.

Before you start, open a new current account with a different bank. Banks have been known to shut down accounts in the middle of a dispute, so a new current account is a good insurance policy. You should also collect as many bank statements as possible so you will have a record of what the bank has charged you under what circumstances. If you have shredded everything for security, you can get copies from your bank under the Data Protection Act if you pay £10.

Here’s the process you need to follow. First of all, write to your bank to let them know which charges you are disputing and why. If you can find the point of law that applies to the charges, so much the better. There are many websites that can help with this information, including providing letter templates for your claim. Include a deadline for a response in your letter.

Sometimes the banks offer a full or partial refund to avoid going to court. If this happens immediately and you are happy with the amount offered, then you have won. However, at other times they ignore the letter. If this happens, or if you want a larger refund, write to your bank again. Give them a time limit within which they must respond and let them know that you plan to take legal action. (You can also refer them to the Financial Ombudsman Service).

If you still don’t get a satisfactory response, you can take it to court. The amount you can claim and the procedure varies slightly depending on whether you are in England and Wales, Scotland or Northern Ireland. In each case you get an online form from the relevant authority and pay a fee of up to £120 to make your claim. You can also use a no win no fee firm to handle your claim, but expect to give away one quarter of your winnings.

This process has worked for millions of Brits who have reclaimed hundreds of thousands in unfair bank charges.

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