Bank charges - what is the battle about?

	Rate (AER)	Interest Free Buffer
A & L	0.00%	£1
A & L	0.00%	£1
Barclays	9.90%	£1
Citibank	13.90%	£1
Barclays	17.90%	£1
* Based on £500 Overdrawn and is a limited guide to the market

The ruling by a high court judge enabling the Office of Fair Trading to continue its probe into bank charges follows a lengthy battle between consumers and banks.

What is the case all about?

It revolves around the fees levied by banks when an account goes over its agreed overdraft limit or a cheque or direct debit is bounced. Most banks charge around £25-£30, but some charge up to £39, and do so each time you go further overdrawn.

As a result, some customers have managed to rack up thousands of pounds in fees, sinking deep into the red. The fees became a hot topic at the beginning of last year as consumer groups encouraged customers to challenge the fees and ask banks and building societies to repay any charges they had already handed over.

In January, the OFT launched a test case against eight banks and building societies to determine if the charges were covered by the Unfair Terms in Consumer Contracts Regulation 1999.

The eight organisations involved in the test case - Barclays, HSBC, Lloyds TSB, the Royal Bank of Scotland, HBOS, Abbey, Clydesdale and Nationwide building society - represent 90% of the current account market.

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Whats the OFTs position?

In 2006, the Office of Fair Trading (OFT) announced that default payments on credit cards were illegally high.

It said typical charges of £25 or more for late or missed payments did not reflect the administration costs for card providers, and told them to reduce charges to a maximum of £12.

The OFT says it disagrees with the banks on a point of principle: it says the unfairness rules of the Unfair Terms in Consumer Contract Regulations apply to overdraft charges; the banks say they do not. Meanwhile, the campaign gathered pace as more customers successfully reclaimed the fees.

What have the banks been doing?

In many cases the banks have simply coughed up, reimbursing customers for the amount they claimed.

Some people have received tens of thousands of pounds back in reclaimed bank charges without having to take legal action. In some cases, however, they have subsequently had their accounts closed and been told to bank elsewhere.

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Other cases have gone to the small claims court, but banks have not turned up to represent themselves and judges have tended to rule in the customer's favour.

15 July 2008 © Moneyextra.com

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Our senior editor Robin Amlôt recommends you should consider taking independent financial advice before acting on any article. Please contact us for help with your individual circumstances if any assistance is required.