How to Claim Back Bank Charges

How to Claim Back UP TO SIX YEARS of Illegal Bank Penalty Charges

Are penalty charges bank robbery?

Banks are making billions of pounds each year from penalty charges. But now the legality of these charges - which cost their customers an average of £30 a time - is being called into question and thousands of customers want their money back.

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STOP PRESS

Banks Retreat in Test Case Over Charges

Banks handed out hundreds of thousands of pounds in refunds to customers yesterday rather than defend their actions in court.

Leeds Mercantile Court was due to hear more than 200 cases from customers demanding the return of overdraft charges they believe were unlawfully imposed on their accounts.

Judge Simon Grenfell planned to use some of the claims as a test case that could be referred to if more actions were brought. But the banks settled the claims at the last minute rather than allowing him to set a precedent.

The cave-in gives new hope to thousands pursuing their banks over unfair charges following recent setbacks that appeared to put the banks in a strong position.

In May, Lloyds TSB became the first bank to win a court case after being sued by a customer for imposing supposedly unfair overdraft penalty charges. A District Judge at Birmingham County Court decided the bank's charges were legitimate and legal. This ruling was later cited by a judge in Hull who threatened to strike out claims by 20 bank customers seeking the refund of overdraft charges. Their cases are due to be heard next week.

It appeared that the banks were gaining ground in the battle over reclaiming charges, but yesterday they were in full retreat.

Around 250 customers had originally been listed to appear at the Leeds court for a case management hearing in relation to their claims. However, the majority settled overnight reducing the number to 75. Despite only 24 individuals turning up or being represented at the hearing, Judge Grenfell said he was hopeful of finding one or two that could go to trial.

Such a move could have led to an 'authoritative ruling' being made by the courts over the legal status of charges that can go as high as £39, but, campaigners claim, cost banks as little as £2.50.

Judge Grenfell indicated that finding one or two people to go forward to trial would be the best way to cope with the matter, amid thousands of similar cases being heard in courts across the UK.

He told the claimants and bank representative present that dealing with all cases one by one would be cumbersome while group litigation would be expensive. 'What we want to achieve today is to pick a few cases that are likely to bring the issue before court so that there is an authoritative ruling,' he said, adding that such a verdict would not be binding on all other cases but would be 'persuasive'.

However, during the afternoon it emerged that the majority of the remaining claimants had settled with their banks, with a handful having their cases held over while an agreement was sought.

Finding himself without suitable claims, Judge Grenfell said: 'I do not have any particular test cases. I think it would be fair to say that the message is that there doesn't appear to be any particular mood to make a definitive ruling on matters of fact and law in this case.'

Take part in our quick survey on unfair bank charges

The furore surrounding the charges intensified in April last year when the Office of Fair Trading indicated that penalty charges, of up to £39, for going overdrawn or bouncing a cheque were likely to be illegal. This guidance prompted thousands more customers to reclaim charges dating back six years.

The banks have employed a range of delaying tactics to prevent customers from pursuing their claims. Some have refused to provide back copies of bank statements - a breach of the Data Protection Act. Others have dragged out responding to complaints beyond the redress period in the industry's code.

Some have even closed the accounts of the customers involved as an act of retaliation, a move condemned by the Financial Ombudsman Service

£36,000 Bank Charges Victory

The recovered sum, which dwarfs the £5,000 offered to law student Stephen Hone last year, comes as banks face a consumer backlash over controversial penalty fees.

The anonymous Norfolk businessman recovered £35,987.94 from NatWest after the bank charged him £30 every time it refused to pay a direct debit or a cheque bounced because there were insufficient funds in his firm's account.

Over 28 months, from 2000 to 2002, he estimates the bank charged him £24,000 in illegal overdraft fees. 'At the time I was paying £2,000 to £3,000 a month in charges,' he said. 'I felt I was being ripped off - they were quite happy to take bank charges from us but were not willing to give us an overdraft.'

Using standard letters like those published below, the businessman, who runs a successful windows and conservatory firm, demanded the return of £24,000 plus £12,000 interest.

After the bank failed to reply, he started legal action using the Government's Money Claim Online service and had a case conference set for May 11. But on Friday, a cheque for the disputed amount arrived in the post, without admission of liability.

Campaigners claim the fees of up to £39 levied on consumers who go over agreed overdraft limits or bounce payments are illegal as the real cost to banks is around £2.50. According to the Consumer Action Group, banks have so far returned around £10m to almost 7,000 people. Marc Gander, of the group, said: 'The general message is that the banks are paying out substantial sums to avoid going to court.'

The Daily Mail and This is Money have led the campaign to raise awareness of the illegal charges since 2005, providing advice on making a claim. Hundreds of thousands of customers are demanding refunds that could top £300m. But banks are taking their revenge by closing accounts.

To date, no court ruling has been made regarding the controversial charges despite a large number of challenges by unhappy customers. The Office of Fair Trading was due to rule on the issue last month but delayed any judgment until the end of the year to avoid making a 'quick fix' that could disadvantage customers in the long run.

NatWest, which is owned by the Royal Bank of Scotland, refused to comment on the latest pay out, saying it does not discuss individual cases.

Campaigners claim penalty charges are illegal. Here we explore what the banks and their regulators are doing about it.

Last year the top six High Street banks in the UK made an estimated £4.5bn from penalty charges. These are charges that are incurred for unauthorized overdrafts, bounced cheques and clearing Direct Debits when there are insufficient funds in the account.

The Campaigner

Stephen Hone is a young father of three and a law student based in Plymouth. When Stephen's bank, Abbey, removed £64 from his account for two £32 penalty charges he called his branch and asked them to pay it back.

"I was livid, I was really annoyed that they refused to give me the money back, the banks are always trying to say they're sympathetic," says Mr Hone. His bank pointed out that these charges were fair and within the terms and conditions of his contract. Mr Hone, however, believed those terms and conditions were unfair and therefore illegal.

Abbey offered to refund one of his charges.

The Legal Position

Stephen argued that under the Unfair Terms in Consumer Contracts Regulations (1999) all penalty charges have to truly reflect the cost of administering them.

They are not permitted to be a profit-making enterprise for any business. He believes if a penalty charge is higher than its administrative cost, it is illegal.

It's very, very difficult to assign costs to specific aspects of the customer relationship Joe Garner, HSBC

Stephen called Abbey again and threatened it with court action if it didn't refund both of his charges. Furthermore he told the bank he would reclaim all the charges he had incurred over the previous six years if it did not reconsider.

The bank declined the offer and said it would defend its policy in court.

So Stephen went through his bank statements from the past six years (the legal maximum period of time that money can be reclaimed in the UK) and filed a claim at the small claims court.

Shortly after filing his claim, Abbey paid Stephen back £840. Stephen used some of this money to set up a website that advises others how to reclaim their bank charges.

The Banks

The key point in this case is that none of the banks want to reveal their true administrative cost for penalty charges.


THE BANK COMMISSION The highest cost banks could justify for bouncing cheques is £4.50

How the Money Programme's "bank commission" worked:

The Money Programme "bank commission"
Most lenders impose hefty penalty charges on their customers.

Having failed to get even a rough indication from any of the major banks about how much it costs them to process their customers' defaults, they decided to set up a commission of experts to try to answer the question.

They deliberately avoided campaigners and prominent critics of the banks.

Instead they chose two eminent business academics Prof Philip Molyneux of the University of Wales, Bangor, and Prof John Struthers of the University of Paisley, and an experienced banker, Ian Jarritt, formerly a senior executive with NatWest.

They asked them to work out the highest costs they thought banks could possibly justify for dealing with defaults, taking every relevant expense into account.

The commission began work in October and met in London a month later to reach their final conclusion.

They decided that the highest cost banks could justify for bouncing cheques (the most labour-intensive procedure) was £4.50.

For other items, such as bouncing direct debits or dealing with unauthorised overdrafts, the commission judged £2.50 to be the highest cost banks could reasonably justify.

Both figures are vastly lower than the average £30 penalty banks have been charging for defaults.

Recently the BBC's Money Programme commisioned a study into the cost of adminstering cahrges.

They asked Joe Garner, of HSBC, what it costs his bank to process a charge.

"You'll understand that I won't go into specific details of individual costs", said Mr Garner.

They then asked him to give a rough cost of these charges to which he replied: "again it's very, very difficult to assign costs to specific aspects of the customer relationship. It's very, very hard to attribute a specific price tag to each aspect of that and that's why fundamentally we don't agree to looking at one specific charge".

After asking all the big banks the same questions, without getting an answer, the BBC decided to find out for themselves with a Money Programme "Bank Commission".

They asked two professors of banking and a former NatWest executive to estimate the banks' costs.

The highest figure they concluded that banks could justify was £4.50 - much lower than what the banks currently charge.

HSBC also told them it settles customer claims for refunds before cases are heard in court.

It's odd that the banks have not chosen to fight a case to date; it suggests that they are finding it difficult to justify the charges that they impose upon their customers Kieron Beal, barrister

We are unaware of any bank opting to defend its charges in a court.

Kieron Beal, a barrister from Matrix chambers, said: "It's odd that they've not chosen to fight a case to date. It suggests that they are finding it difficult to justify the charges that they impose upon their customers".

He believes that if a bank did go to court it would lose.

And Nick White, head of personal finance at price comparison site Uswitch.com, says that if a bank did lose a case there would be huge publicity around the issue that would alert many more consumers to the fact they could challenge the banks. It would make it much harder for the banks to defend their charges.

The regulators

The Office of Fair Trading has already forced banks to reduce their penalty charges for credit cards to a maximum £12, and it has now opened an investigation to establish what the real costs of current account penalty charges are.

Why are the banks paying up when customers demand their penalty charges be refunded?
By Michael Robinson

Bankers are not famous for handing out money on demand - certainly not to the tens of thousands of people they privately acknowledge have already reclaimed their penalties.

But talk to bankers or their trade association about what's going on, and you enter a Banker Wonderland.

For example, you might suggest to the banks, as I've been doing over the past couple months, that they're repaying penalty charges because they think they're on a legal loser and don't have a hope of defending themselves in court.

Not a bit of it, has come a bankers' chorus in reply. "Our charges are all completely legal".

So what's the reason bankers themselves give for paying up?

"We don't want to be in court with our customers" one banker tells me. "It doesn't make economic sense to fight such small actions." says another.

"We want to keep a good relationship with our customers - fighting in court wouldn't help that." says a third.

But these arguments don't answer a more a basic question.

Are penalty charges legal?

Imagine you were not talking about penalty charges, but overdraft interest instead.

Try writing to your bank demanding they refund all the overdraft interest you've paid, or you'll sue.

It's easy to imagine the letter you'd get in return - polite banker-speak for "push off and forget it".

If you were mad enough to take your bank to court, you'd almost certainly end up with nothing but a lawyers' bill and egg on your face.

Why? Because however much you may resent the interest your bank charges on your overdraft, no-one challenges its legality so your bank is entitled to keep it.

But with penalty charges, the situation is very different. Penalty charges are widely challenged as unlawful by campaigners. The Office of Fair Trading is now scrutinising them as well.

Are banks charging fees or penalties?

Not surprisingly, banks are spending plenty of money on top lawyers trying to develop legal arguments to justify their charges.

The banks' latest line, revealed this month by their trade association, is that what everyone thinks of as penalty charges aren't, in fact, penalties at all - but fees for the service banks provide.

People may not like having their cheques or direct debits bounced, this argument goes, but it is all part of the service and that means it's legal.

How confident are banks in this new argument?

Well, if willingness to try it out to court is any guide, not very. Because in every case we have come across, banks have paid up rather than challenge a customer in court. And there's no sign that's changing.

Why don't banks go to court?

Which brings us to one final question for the banks.

If banks don't ever go to court to defend themselves against customers who ask for their penalties back, why do they tell customers that's precisely what they're going to do?

I suggested to the bankers' trade association that for banks to try to scare off customers by telling them they'd see them in court when they clearly had no intention of doing that amounted to little more than "bluff and lies".

The association thought the phrase was "pretty strong stuff" and "rather unnecessary" but, given that banks have never once defended themselves in court on this issue, it's hard to see what else it amounts to.

In November Walter Merricks, the chief financial ombudsman, effectively told the banks to put up or shut up: to prove their penalty charges are legal or pay customers' claims in full.

Perhaps the time has come for banks to stop bluffing and to turn up in court to defend their charges.

But with the legality of well over £10bn of charges in the balance, what would happen if they lost such a case is a question most bankers don't even want to think about.

The Bovingdon factor

The Money Programme went to Bovingdon - a typical English village - to find people that had also been affected by the banks' charges and to see if Stephen Hone's advice on how to claim back these charges really worked

UK banks could earn £5bn a year from penalty charges Open University

Jemma Miozga, a mother of one who works in a garden centre, had been charged up to £39 each time she exceeded the overdraft limit agreed with her bank, Halifax.

"The banks, I think are putting these charges on to make a profit, no-one would agree with the charges," she says.

"They are there for the banks to make a profit and it's not fair. I just thought it was what banks did. So, I was astonished when Stephen said [the charges] were illegal."

Mickey Boulton, a self-employed builder was frustrated with his bank over the amount it had charged him. "We've got in six months just under a £1,000 worth of charges. They've had a lot of money out of us, and I want it back."

As a result of Stephen's advice, Jemma successfully claimed back just under £5,000, while Mickey was offered £600, which he has accepted.

While the country waits in anticipation for the outcome of the Office of Fair Trading's inquiry, is it time to reclaim your charges?

If you think you have been a victim of what some are calling Bank Robbery, why not follow the step-by-step guide to reclaiming your bank charges, which includes letter templates to send to your bank?

How to claim back penalty charges

Here's a step-by-step guide to claiming back your bank account, credit card and store card penalty charges. We have also provided you with templates for form letters that you can send to your lender.

Penalty charges can be incurred for the following: unauthorised overdrafts, unpaid items such as cheques, direct debits or standing orders. These are also known as returned or bounced items.

You can claim the last six years of charges, or five if you live in Scotland (for claiming back your fees in Scotland, see the special entry below).

Some lenders have threatened to close the accounts of people after they have claimed back their charges. This is rare and unlikely to happen but if you are worried you should open an account with another bank, just in case.

You have all your statements from the past six years

Highlight all the penalty charges in your last six years of account statements.
Add up the total and then fill in all the information on the document in the box below, called '14 day letter'.
Next, post this letter by Recorded Delivery, to the branch address of your bank/lender including a photocopy of the highlighted statement pages.
The bank/lender will usually respond to the letter by either refusing to meet your claim or by offering to settle in part, or in full.
If the claim is small, the bank/lender may want to settle it quickly to reduce its legal and administration costs. If the claim is large, it is more likely the bank/lender will do nothing - waiting until you actually go ahead and file a claim at court.
Check online with the Post Office to confirm the date that the bank/lender received your letter and then allow 14 days from that date for it to respond.
If, after 14 days, you have received no response at all, or are unhappy with the bank/lender's response then the next stage is to file a claim at your local small claims court (see section titled 'File at Court' below). There is a fee to file a claim. If your bank pays up, this fee is refunded at the point of settlement.
The bank/lender is then obliged to defend its case before the judge or else to pay the amount you are claiming against it. If it chooses not to defend itself, as well as paying the full amount of your claim, it will also refund your court fee. So far no bank/lender, we are aware of, has defended its penalty charges in court. (see section titled 'File at Court' below).

DOWNLOAD THE LETTER

Bank charges '14 day' letter [14KB]
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Download the reader here

You have only some statements from the past six years

You can submit an estimated claim if you genuinely believe you have been charged during a period for which you have no statements. Calculate all the charges from the statements you have and if you believe the missing statements would also record similar charges, then estimate the missing amount by doing the following equation:

If one year's statements show £70 of charges then you can estimate the total amount of charges for 6 years will be: £70 x 6 = £420.00
If you have 5 months of statements and these show that you have accumulated £150 of charges in that time, then you can calculate that you have been charged on average £30 a month. (£150 divided by 5 = £30). There are 72 months in six years so 72 x £30 = £2,160.00 (if your account hasn't been open for the past six years then only multiply the average amount by the number of months the account has been open).
Fill in the necessary details in the template for the "estimated charges letter" in the box below and post it Recorded Delivery to your bank/lender's branch address.
Your bank/lender will almost certainly work out how many charges you have actually incurred in the past six years. It may contact you within 14 days to either make you an offer, in part or in full, or to state that it has refused to refund your money.
If the claim is small, banks/lenders tend to settle the claim quickly to reduce their legal and administrative costs, but each organisation reacts differently. If the claim is large, then it is more likely the bank/lender will do nothing until a claim is filed at court.
Check online with the Post Office to confirm the date that the lender received your letter and then allow 14 days from that date for it to respond.
If, after 14 days, you have received no response at all, or are unhappy with the bank/lender's response then the next stage is to file a claim at your local small claims court (see section titled 'File at Court' below). There is a fee to file a claim. If your bank pays up, this fee is refunded at the point of settlement.
The lender is then obliged to defend its case before the judge or else to pay the amount you are claiming against it. If it chooses not to defend itself, as well as paying the full amount of your claim, it will also refund your court fee. So far no bank/lender we are aware of has defended its penalty charges in court. (see section titled 'File at Court' below).

DOWNLOAD THE LETTER

Bank 'estimated charges' letter [14KB]
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Download the reader here

What to do if you have no - or very few - bank records

Check to see how far back you can access your statements through your bank's or lender's website.

If all your statements are not available online, then phone the bank or lender to ask for the relevant information. You may be charged for this.

If the charge is more than £10 and you are unhappy to pay it, there is the option of submitting a Data Protection Act (DPA) disclosure request (see section below titled Data Protection Act disclosure request for further information).

When the statements arrive, follow the advice from the first section "You have all your statements from the past six years".

Data Protection Act Disclosure request

This request is made under the Data Protection Acts 1984 and 1998 and refers to the "right of subject access" under the acts.

Use the draft Data Protection Act letter below as it has been written to avoid confusion and delay. Using the DPA route does delay the process of claiming back penalty charges by as much as 40 days. It is therefore a last resort.

Make a note of any calls you make and what the lender tells you. Also note when you post letters etc as this will make it much easier to keep track of everything.

Once the statements or charge details arrive, then follow the advice from the section entitled "You have all your statements from the past six years".

DOWNLOAD THE LETTER

Data Protection Act letter [14KB]
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Download the reader here

Filing a claim in the Small Claims Court (England & Wales)

If you are unhappy with your lender's response to your "14 day letter", then the only option left is to go to court.

First check that the lender received your recorded letter and that 14 days have passed, then download the form from the link below.

You can access the Claim From online, using the links in the box below.

Print out the form and make two additional copies.
Take all three copies and register the claim at your local County Court.
You can find the address of your local County Court by calling the High Court on 0845 456 8770.
If you have all your statements, attach a highlighted copy of them to each claim form.
If you don't have all your statements and you are estimating your claim then include a copy of the statements you do have that show a charge to each of the claim forms.
When you file a claim, you are entitled to claim interest on all the penalty charges your bank/lender has levied against you - from the date they were originally deducted from your account. If you decide to claim the interest, attach a copy estimating the interest to each of your three N1 claim forms.

The time it takes a lender to settle claims can vary.

SMALL CLAIMS COURT FORMS

N1 claim form for the Small Claims Court

HM Courts Service guidance

HM Courts Service: how to make a claim

Guide on filling in form N1 [15KB]
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If you are in Scotland

In Scotland, you can claim back five years of penalty charges, not six.

You need to fill out a Small Claim Summons document and take it to the Sheriff Court.

There will be a charge for filing the claim.

Guidance Notes on how to fill out the form can be found here:

DOWNLOAD THE FORM

Scottish small claim form [102KB]
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Sheriff Court guidance notes

No time but still want to claim?

If you don't have the time or inclination to claim back penalty charges yourself, there are several companies on the internet that will do it for you. They usually keep a percentage of your claim as their fee.

All the advice given and enclosed documents are courtesy of Stephen Hone and his website www.penaltycharges.co.uk and have been used with his consent.

If you manage to make a successful claim as a result of this article please let us know Here

Further Comment:

Hi,

I have been a member for some years now... do you think informing your members of this site would turn out to be helpful?

There are loads of petitions they can sign up to etc.

I give the link below.

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