The topic of bank charges has become a hot one over recent years with the banks being heavily criticised by customer and consumer groups for overcharging, particularly individuals who can least afford it. This is a controversial issue. The banks would argue that their charges are very clearly stated and that there are very clear rules. If you stick to the rules you don’t have to pay anything to operate most current accounts. The only way they can afford to offer free banking is by charging those people who do not stick to the rules. Consequently, customers who regularly exceed their overdraft limits will pay charges so that those who don’t can enjoy free banking.
Many customers are trying to sue banking for what they see an over-charging and this has been running through the courts for a couple of years now. Some customers have won some of their charges back but the banks are fighting the cases strongly. The best advice is:
- Avoid the situation by keeping a close eye on your bank statement and the balance of your account so that you have enough to cover your cheques and direct debits.
- It you do think you need to go overdrawn, contact your bank immediately and make sure your overdraft is authorised. You will still pay interest on the overdraft but will avoid the charges.
- It is possible to reclaim charges from the bank if they are excessive.
General Bank Charges
Most banks will charge you to:
- Exceeding your overdraft limit – even if only £1 you can typically be charged £25 for every day you stay overdraft.
- Bouncing a cheque – where there is not enough money in the account to cover the cheque; this is a one-off charge of as much as £40.
- Bouncing a direct debit – where there is not enough money in the account to pay it; this is a one off charge of as much as £40.
Other charges include:
|Overdraft Usage Fee||50p a day for not more than ten days in each monthly charging period (up to £5)|
|Exceeding Overdraft Limit Fee||£5 a day for no more than 20 days in each monthly charging period.|
|Stopping a payment||£10|
|Paper copy of a statement||£5|
|Card transaction abroad||3% of transaction|
|Card withdrawal abroad||2% of advancing cash + 3% of transaction|
Mr. Roberts who is a small business owner was charged £35 every time a payment was made which was over his overdraft limit. This happened three times on one day when three transactions – a cash withdrawal, a cheque and a debit card payment – all went out on the same day. This meant that in one day he was hit with charges for £105, all for going a few pounds over his overdraft limit.
Taking Back What’s Yours
If you have racked up a large amount of charges from your bank and just moving to one of its rivals is not sweet enough justice for you, then you could try getting those charges back. It sounds like a long show but 85% of people have been successful, according to which.co.uk. Under the Unfair Terms in consumer Contracts Regulations, penalty charges – include the £40 your bank hit you with for having to inform you it bounced one of your cheques – genuinely have to reflect the cost of administering them.
The law says these fees must not be a profit-making activity and have instead to be proportional to the actual costs of administration. In simple terms, if the letter you received to inform you that you had exceeded your overdraft limit was written with golden ink and was hand-delivered by The Queen then the £40 charge would seem fair. For an automated letter through the post, however, there is an argument its illegal. And it is this point – that banking charges are far higher than their cost of administration – that has enabled thousands of savvy consumers to successfully recover hundreds and sometimes thousands of pounds from the bellies of their fat banks.
Experts estimate that the highest cost that banks could justify for bouncing cheques is £4050, while for other items, such as declining direct debits or standing orders, the highest cost is judged to be in the reign of £2.50. No bank has been will to declare the actual costs of these transactions but hasn’t stopped many of the well-known high-street names from returning a heap of money to thousands of angry customers.
If you think you have been a victim of what some are calling bank robbery, then read on.
Claiming Back Unfair Bank Charges
Our comprehensive guide to reclaiming unfair overdraft charges and bank fees:
1. Approach the Bank
The first thing to consider is approaching your bank and bringing the charges to their notice. In today’s world of modern banking, banks value their customers. Your bank might just consider writing off those charges as a gesture of goodwill. Don’t worry, you won’t be penalised by the bank and the bank is obliged to treat you the same even after complaining
2. Add-up the Charges
The next this you need to find out and total up all your charges. According to the UK law the maximum period of time you can backdate and reclaim money is six years, so you need to find out all the fees you’ve been hit for during that time.
- You have bank statements: If you’ve got all your bank statements, highlight all of your charges, make copies and send them as well as a covering letter to your bank asking for the money to be returned. I you need help constructing the cover letter; templates can be found and downloaded from various websites.
- You have some bank statements: If you don’t have all your bank statements, then you can submit an estimate claims if you genuinely believe you have been charged during a period of which you have no details. If one year’s statements show £100 of charges, you can estimate the total amount of charges for six years to be £600.
- You have no bank statements: If you don’t have any statements at all, you can also send a letter to your bank requesting a complete list of all previous charges – it’s your legal right to do this under the Data Protection Act, although your bank is allowed to charge for this so be prepared to part with a fee of around £10.
3. Making a Claim
The next step is to post your letter, including a photocopy of your highlighted statement, by recording delivery of your lender’s branch address. You bank will probably respond to the letter by either refusing to meet your claim or by offering to settle in part of, if you’re very lucky, in full.
If the claim is small, your lender may want to settle it quickly to reduce its legal and administrative costs. If the claim is large, it is more likely it will do nothing – waiting until you actually go ahead and file a claim at court.
If after fourteen days, you’ve received no response, or are unhappy with your bank’s response; your next step is to file a claim. There’s a fee of between £30 and £120, depending on the size of your claim, to do so but if your banks coughs up this fee will be refunded. When you file a claim, you are also entitled to apply for interest on all the penalty charges your bank has levied against you – from the date they were originally deducted from your account. You bank is then obliged to defend its case before the judge or else pay the amount you are claiming. If it chooses not to defend itself, a very common outcome, you automatically win by default after fourteen days and, as well as paying the full amount of your claim; your bank will also refund your court fee. (For refunds related to taxes for subcontractors one should contact HMRC)
4. Approach the Financial Ombudsman
If your request from the bank gets rejected, it’s time to consider taking the matter forward. The next logical approach is to contact the free Financial Ombudsman Service. The Ombudsman is a free independent service which helps settle matters between financial companies and customers. All that is required is to fill out a few forms and wait for a few months for the Ombudsman to get back. Contacting the Ombudsman doesn’t necessarily guarantee that you will reclaim your bank charges, but the risk of loss is far less.
Once the Ombudsman get a hold of your case it will consider it based on the ‘fairness’ criteria i.e.; if you have been harshly or unfairly treated by looking at your present financial situation or specific times in the past.
So far no lender has defended their penalty charges in court – possibly because they don’t want to set a precedent it they lose or because they are afraid of revealing their true costs – but that doesn’t mean one won’t in future. A standard has not been set on this and the banks are furiously developing their policies to fight back. There is no guarantee you’ll win but – so far, the majority of people who have tried have been successful. It’s well worth the effort if you believe you’ve been hit by one too many unfair charges.
Any questions? Schedule a call with one of our experts.