Customers are a step closer to getting money back following a court decision in favour of the Office of Fair Trading.
For many people, the moment they fall out with their bank comes when they get hit with their first bank charge. They may have been banking quite happily with them for many years, but suddenly dip into the red by accident. This tiny slip costs them £38 the first time, and after that the charges just keep coming.
Some customers who have been hit with this charge every time they have missed a direct debit payment or had a cheque bounced now have bills for penalties running into many thousands of pounds. The banks argue that these charges are fair and proportionate, but angry customers are not so sure.
Many believe there is nothing proportionate in charging £20 to send out a letter informing customers that they have breached their overdraft limit. Likewise, some argue it is unfair to charge £30 for a bounced cheque or failed direct debit, when the bank merely incurs the cost of informing the other party; they are also asking banks to justify the large daily fines that attract interest charges for unauthorised borrowing.
Last week these customers came a step closer to getting their money back. Judges ruled that bank charges can be tested for fairness by the Office of Fair Trading (OFT) – which could pave the way for billions of pounds of charges being reclaimed.
Many bank customers managed to get their money back from banks before April 2007 by taking them to court under unfair contract laws. However, all of these claims have been frozen by the Financial Services Authority (FSA) until there is a definitive ruling about whether the charges were legal or not. They remain frozen until the OFT decision has been made.
Although most customers with bank charge bills remain in limbo, there are still things you can do to maximise your chances of getting the money back in the long run, and ensure the charges don't rack up in the meantime.
1 Claim financial hardship
There is one exception to the freeze on bank charge reclaiming – and that is if you fit a definition of "financial hardship". If you do, the banks have to consider your case and may refund the money you have lost because of the charges.
As a loose guide, you can claim that you are in financial hardship if your income is not enough to cover reasonable living expenses such as utilities, rent or council tax. If you have mortgage arrears or are struggling to pay back credit card debts you may also be considered. If you have been made redundant, have a disability or serious illness or are starting full-time education, this may help your case.
Step one is to write to your bank, explaining that you fit the financial hardship criteria and would like your case looked at. Your bank will probably send you a financial statement to complete, which you should fill in as soon as possible. Your bank may then offer you a partial or full settlement.
If you are unhappy with what it offers, or your request to be considered is ignored and you believe you meet the criteria, you can write to the Financial Ombudsman Service, who will take the matter up for you www.financial-ombudsman.org.uk 0845 080 1800).
2 Get your claim in early
If you have racked up a large bank charges bill, it is worth getting your claim in now, even if you don't fit the hardship criteria. There are thousands of people in the queue to get bank charges back, and you do not want to be at the end of it when – and if – the freeze on reclaiming the charges is lifted.
Martin Lewis, of Moneysavingexpert.com, said: "There are already 100,000 whose cases are on hold, so when the floodgates do open, the further ahead they are in the queue, the sooner your claim will be processed. It only takes a few minutes to start a reclaim, and then it's just a question of sitting back twiddling your thumbs, so there is nothing to lose."
The best way to start is to make a list of the charges your bank has made over the past six years (or five years if you are in Scotland, owing to different laws). You can only claim bank charges back this far. If you don't have details of all the charges from your bank statements you can request them from your bank, which is legally obliged to give the details to you under the Data Protection Act. They are legally allowed to charge £10 for this information, but check by phoning them first, because some banks will just send it to you anyway.
Once you have the details, you can send a letter asking for the money back, and you can even claim for 8 per cent interest on top of this. There are several places on the internet where you can download template letters in order to make the claim, including www.which.co.uk. These will help you to get the claim in quickly and easily.
3 Find a better bank account
If you have been struggling with bank charges, it may be possible to find a bank account where those charges are smaller to lessen the blow. You can still reclaim the charges on a closed account, said Michelle Slade from financial statistics service Moneyfacts, so if your account has high charges and you are constantly incurring them, now is the time to get out.
Some banks have already begun to cut their charges, with Barclays cutting their penalty for missing a payment such as a direct debit to £8 from more than £30. Compared with that, Royal Bank of Scotland and NatWest charge £38 for the same service and may do so up to three times a day.
Other banks, such as Alliance & Leicester and Abbey, now charge a tiered rate, so that if you are only overdrawn by less than £5 your penalty will not be as great as if you were overdrawn by hundreds of pounds.
4 Take control
While some people incur bank charges because they simply cannot afford to stop using an unauthorised overdraft, for many people it is just a matter of simple disorganisation. To minimise this, you could choose a bank account that will tell you when you are approaching your overdraft. Lloyds has a Control account, which will tell you this, but you would have to pay £10 a month for the privilege (though that may be cheaper than your bank charges). First Direct (which is part of HSBC) will text
mini-statements to your mobile phone on request, which would help you avoid the charges.
The Telegraph, 3rd March 2009