Bank Charge Reclamation - The Latest News
The reclaiming of bank charges has continued to make headlines, and in late February 2009 the Court of Appeal caused a setback to high street banks by confirming the decision of the High Court that the charges they levy are in fact subject to fairness rules. The banks can now appeal to the House of Lords, whilst the Office of Fair Trading (OFT) is tasked with assessing whether the charges are actually unfair.
The specific issue here is that, under the Unfair Terms in Consumer Contract Regulations, banks should only impose charges that bear relation to the costs that have arisen by an account going into arrears, such as the administrative costs of writing a letter to notify the account holder for example.
When a computer-generated letter arrives informing the recipient that they have exceeded their overdraft limit, or a cheque has bounced because there were insufficient funds in the account, the charges the banks levy are in the region of £35. It has actually been estimated that the cost of transmitting this letter will have cost the bank a maximum of £4.50, so with this in mind, the charge levied by the bank on an account (which may be overdrawn by a mere £1) has been suggested by the OFT to be unfair and out of proportion to the costs incurred.
If it is proved in law that these charges are unfair and unlawful, then consumers are entitled to have them refunded. Thus far, the banks have tried to argue that 'unfair contract' terms don't apply to their charges, but the OFT has disagreed and commenced with a test case to establish the legal protocol. This argument has been rejected twice by both the High Court and Court of Appeal, the latter who announced on February 26 2009 that bank charges can be assessed for fairness, which is a giant leap forwards for customers who have tried to reclaim. The Court found that these terms are not part of the core contract between a consumer and their bank, and the consumer is entitled to protection under the Unfair Terms in Consumer Contract Regulations (UTCCRs) for such terms.
Currently the OFT is assessing the fairness (or unfairness) of bank charges. On April 3 2009 the OFT announced plans to "streamline its investigation into unarranged overdraft charges" by concentrating on three specific banks – Lloyds TSB, HSBC and Clydesdale - with the aim of advancing the case quickly and efficiently. They have selected these three banks since collectively they were felt to provide the "best representative selection of all the banks' unarranged overdraft charging terms" which will focus the investigation and give more relevance to the assessment of terms set in other banks. The OFT has been hasty to underline that they would not wish any presumptions to be made that their investigations are more or less likely to find the terms of the three banks' unfair in comparison to those of competitors. They have placed the investigation into the other banks' terms "on hold" and reiterated that none of the banks' terms have been given a green light.
Whilst the banks prepare their appeal for the House of Lords, the waiver that placed thousands of consumer claims on hold by the Financial Services Authority (FSA) will remain. This means that all cases that have been placed "on hold" in the county courts or with the Financial Ombudsman Service (FOS) will probably remain so and the banks will continue to charge the same charges as before. Although this changes little for the claims previously submitted by customers, anyone can still start a claim, especially if they are in financial difficulties as the freeze may not be applied in their case.
Making a claim for a bank charge is free and simple, but there's a procedure that should be followed. Any default bank charges from the past six years can be disputed, and it has been widely accepted that claims can be made for charges paid on unauthorised overdrafts to as far back as July 2001, which is effectively the six years before the OFT's test case commenced. Since most people are unlikely to have retained their bank statements for that length of time, banks should be able to supply their customers with information of past charges when they receive a written request. To comply with the Data Protection Act 1998 they must provide this information within 40 days, although they are permitted to charge an administration fee of up to £10 for this service. There are several reputable financial websites offering consumers advice and letter templates to start their own complaints procedure.