Bank Charges and Reclaiming Your Bank Fees
Once upon a time there was only Esther Rantzen on ‘That's Life' fighting against the big corporations. Now millions of consumers are fighting back and nowhere is this more apparent than in the movement to reclaim bank charges.
Incredible as it may seem, the small print sent out by banks detailing the charges they will deduct from your account if you go overdrawn or exceeded your agreed overdraft may never have been legal. I say ‘may' because the question of bank charges has not yet been fully tested in court. Instead, banks have been choosing to settle out of court and already tens of thousands of pounds have been repaid to customers who were charged unfair bank charges.
So how does it work? Well, the law states that any losses caused by a breach of contract can be reclaimed, but excess penalties cannot be charged. When you open a bank account you are entering into a contract with your bank. If you go overdrawn, or go over the limit of an agreed overdraft, you are breaking that contract. The bank is then allowed to charge you any costs it suffers as a result of your being overdrawn - but it is not allowed to charge more than the costs incurred. Estimates suggest that a letter sent out to tell you that you are overdrawn can cost no more than around £2.50 at the most. Yet banks regularly charge £30 or £35. If you have been a victim of these charges at any time within the last six years you can probably reclaim the money from your bank.
Are your Bank Charges Unfair?
The first thing you will need to do is assess which charges were unfair. There is a time limit of six years, so you would need to go back through your bank statements and list any penalty charges you have been paid in that time. This might include charges for letters sent out to you from the bank, fees imposed for unauthorised borrowing, fees charged for cheques, standing orders or direct debits which bounced and account misuse fees. You cannot claim for cash machine fees, foreign currency transactions, or monthly fees routinely charged on your account.
If you do not have six years' worth of bank statements you can ask your bank for copies. They are entitled to charge you up to £10 for this service and you can be pretty certain that they will!
You then have to calculate the cost of the unreasonable fees. Remember, banks are entitled to charge their actual costs, so don't assume you will be able to reclaim the entire amount. You may also want to consider charging interest although this can be difficult to calculate.
Reclaiming Your Bank Charges
Your next step would be to write to the bank to ask for a repayment of the fees. Occasionally banks will pay up immediately but this is unlikely. You are more likely to receive a standard letter denying that they owe you anything. Persevere. Write again pointing out that you will pursue the matter through the small claims court if they do not refund the money. At this point they may offer you less than you asked for. It is up to you whether to accept this or not. If you don't have any success then you can begin a small claims court procedure. In England and Wales costs of up to £5000 can be reclaimed through the small claims court. In Scotland the limit is £750 and in Northern Ireland £2000. Small claims can now be dealt with online through the government's website at www.monyeclaim.gov.uk.
So far, the vast majority of cases have been settled without the small claims procedure going all the way, but some experts believe it is only a matter of time before banks start to fight back. If you are going to claim through the small claims court make sure the claim you are making is reasonable. If your case is complicated you would be wise to seek legal help. A number of law firms are offering to reclaim bank fees for customers on a no win-no fee basis and this may well be a simpler route to take than going it alone.
At present, it is difficult to see where this movement of reclaiming charges will end. A few banks have taken to closing customers' accounts after repaying bank charges. The Financial Ombudsman has made it clear that it considers this to be an unfair action and banks are becoming more cautious about doing this.
Bank Charges or Profit?
Banks currently derive an annual income of about £4.5 billion in unfair bank charges. If this source of income is removed are they likely to impose higher monthly charges or lower interest rates to make up for the loss?
Whatever the eventual outcome, it seems clear that customers are likely to be far more savvy in the future about what is and is not a reasonable cost. Esther Rantzen must be delighted.
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