How to get your bank penalty charges back

Getting back bank penalty charges could leave you laughing all the way from the bank instead of to it, leaving the management inside to sob bitter tears over diminished profits. A ruling in April 2006 by the Office of Fair Trading that many bank penalty charges of more than £12 are unfair could generate a flood of compensation claims.

These penalty charges are those enforced for late payments on credit cards, unauthorised overdrafts, unpaid direct debits and standing orders, and missed payment fees on store cards and mortgages. The ruling, which extends back six years, is seen by lawyers and consumer groups as a green light for getting back bank penalty charges with customers now seeking redress for hefty charges and penalties over that period. Many believe that the OFT ruling will significantly improve your chances of a successful outcome in a small claims court action.

Keeping penalty charges below £12 is not going to make for happy bank managers. For instance, the big four banks (Halifax, NatWest, TSB, Barclays) all levy a charge of £30 if you exceed your authorised overdraft limit without permission. It has been estimated that some £3 billion a year of bank profit stems from such charges.

Then there's the cost of notifying us(by letter) which has to be recovered (average charge £35) and often a further levy of anywhere from £20 to almost double that as a default charge for going over your limit.

Research indicates that 36% of the adult banking population have been overdrawn without authorisation at some time, and the average cost of penalty charges each time amounts to £70. Consumer group Which? maintains such charges are illegal under the Unfair Terms in Consumer Contracts Regulations and has set up a website to help consumers retrieve money lost in this way. And there have been successful consumer actions; for example a student, earlier this year scored a major victory by securing a £5,000 settlement from Abbey after arguing his case under these regulations.

The steps you need to take to get your bank penalty charges back

The first step is to write to your bank asking for your money back (you might even consider adding a £35 admin fee!). Under the Data Protection Act your bank is obliged to supply a list of all charges you have paid in the past six years. You may get a refund without too much quibbling.

If you don't, then, as step two, a stronger letter is required, warning of court action or of referring your case to the Financial Ombudsman Service (FOS). Which option you take will be determined by personal circumstances. If it is the latter course of action, once you complain to the FOS your bank has eight weeks in which to resolve the dispute or incur a fee of £360.

This fact alone may stimulate the settlement of smaller claims. As of yet there are no published FOS decisions relating to bank charge cases, so it is difficult to ascertain its view on such a situation although it will undoubtedly evaluate the administrative burden the bank has incurred. An FOS application must be made within six months of your bank's final rejection of your friendly overtures about returning unfair charges.

A form must be filled in; help in doing this can be obtained by calling the FOS helpline, 0845 080 1800. If you decide on the small claims court route (you can still do this despite an earlier, unfavourable FOS decision), then you will incur a fee of 10% (minimum £50) of the value of your claim. However, this will be paid by the bank if you win. There is a maximum sum claimable in small claims courts; £5000 in England and Wales, £750 in Scotland. Again a form has to be filled in. Do it online at www.Moneyclaim.gov.uk (pay the fee by card) or do it in person at your local court.

The Which? website features form-filling advice and stock paragraphs you can utilise. Your bank must respond within 21 days of receiving notification from the court. If it doesn't you can request judgement from the court in your favour. If the bank disputes your claim, you (and the bank) will be required to attend a court hearing, where both sides make their case. You do not need a lawyer and the situation is usually quite informal.

What happens if (when?) you win?

Whether your claim is upheld or rejected you will probably be told to relocate to another banking operation! According to Halifax the UK is unique in that you don't have to pay anything to use a bank's facilities, so long as you don't abuse payment deadlines or exceed predetermined overdraft limits (although many of us do have 'packaged' accounts which do charge a monthly fee).

Analysts at Credit Suisse have assessed the cost for banks of complying with the OFT's £12 ruling at around £1 billion per year. Banks have until the end of this month (May) to respond to the ruling. The OFT has intimated legal action if charges are not reduced across the board by then; it also expects "credit card issuers to adjust their default levels quickly".

The British Bankers' Association is peeved that the OFT extended its ruling to encompass bank overdrafts, store cards and mortgage penalties, when the original OFT investigation was confined only to credit cards. Industry experts foresee the removal of free banking and free credit cards if the ruling is upheld. It's a fact of life; if banks can't make their huge profits one way, they'll find another. Bear that in mind when making your claim!

23 July 2007 © Moneyextra.com

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