Well when writing this article the first question was where to put it, so I decided to open up Rants of a loony toon for well my own opinions which may make sense though it wasn’t how I first envisioned the section to do, but on to the topic bank charges and claiming them back.
Now we all know the huge (well bigish) fines we may get from banks due to overdraft, or have a cheque or direct debit payment bounce, the result is a nice letter in the post telling us
‘hey we know your account says -£0.01 at the moment but because you didn’t tell us you were going to go borrow 1p from us so here is a £35 charge for our costs’.
£35! Ok you may not be overdrawn but if you are charging you more where is the sense? Yet you still have to pay …or do we? Read on.
Firstly lets draw a picture of the ‘opponent’ and let us look at….
Some stats
>It is estimated that 1 in 5 bank customers are victims of unlawful penalties
>It is estimated that £4.5 billions p.a. are earned by the banks in penalty charges
>The Northern Ireland Competition Report – 26.10.2006 indicated that about 12% of current account revenue is earned from penalty charges.
>Bank profits this year are revealed at about £42 billions
>The estimated figure of £4.5 billions of unlawful bank charges is in the general order of 12% of £42 billions so we assume that the figure of £4.5 billions is not unrealistic.
(source)
The question is now OK you said I can claim back these charges and banks have the money to pay us back but on what basis?
A brief Legal Overview
Dunlop Pneumatic Tyre Co. Ltd v New Garage and Motor Co. Ltd. (1915)
Lord Dunedin set out some tests that are considered even in modern cases when the court is asked to rule on penalty charges. They are; 1) If it is “extravagant and unconscionable” i.e. that the cost incurred by the business because of the breach is lower than what the consumer is being expected to pay because of the breach. 2) It is also a penalty where the consumer is to pay a larger sum due to failure to pay a smaller sum. Ford Motor Co. v. Armstrong (1915)
Lordsvale Finance PLC v Banks of Zambia (1996) QB 752
“whether a provision is to be treated as a penalty is a matter of construction to be resolved by asking whether at the time the contract was entered into the predominant contractual function of the provision was to deter a party from breaking the contract or to compensate the innocent party for the breach. That the contractual function is deterrent rather than compensatory can be deduced by comparing the amount that would be payable on breach with the loss that might be sustained if the breach occurred”
Bridge v Cambell Discount Co. Ltd (1962)
The court held that the term that specified charges in the case of cancellation of a hire purchase agreement was a penalty charge and therefore it was unenforceable. Therefore where there is a term in a contract that is a penalty it cannot be enforceable.
Murray Leisureplay (2005) EWCA Civ 963
English contract law recognises that, if the parties agree that a party in breach of contract shall pay an unjustifiable amount in the event of a breach of contract, their agreement is to that extent unenforceable.
What the Unfair Terms in Consumer Contracts Regulations 1999 No 2083 states:
Schedule 2 Indicative and Non-Exhaustive List of Terms which may be Regarded as Unfair:
(e) requiring any consumer who fails to fulfil his obligation to pay a dis-proportionately high sum in compensation
S10 Complaints- consideration by (OFT)
(1) It shall be the duty of the [OFT] to consider any complaint made to [it] that any contract term drawn up for general use is unfair, unless–
(a) the complaint appears to the [OFT] to be frivolous or vexatious; or
(b) a qualifying body has notified the [OFT] that it agrees to consider the complaint.
(2) The [OFT] shall give reasons for [its] decision to apply or not to apply, as the case may be, for an injunction under regulation 12 in relation to any complaint which these Regulations require [it] to consider.
12 Injunctions to prevent continued use of unfair terms
1) The [OFT] or, subject to paragraph (2), any qualifying body may apply for an injunction (including an interim injunction) against any person appearing to the [OFT] or that body to be using, or recommending use of, an unfair term drawn up for general use in contracts concluded with consumers
(source)
By looking at the cases and the OFT we can see that the basis for the refund of these claims lies in ‘Unjustifiable, Unfair charges’.
Now when you open a bank account you enter a contract with your bank and this contract has to fulfil and adhere to a number of provisions one of which is The Unfair Terms in Consumer Contracts regulations 1999. This was introduced as a result from national implementation of the European directive on unfair terms in consumer contracts (Directive 93/13/EC April 1993), its main aim was voiding all unfair non-core non-negotiated terms (terms other than those relating to price or the main subject matter).
In the case of First national bank Lord Steyn gave examples of terms inherently unfair (para 36) that fulfilled both ‘requirements’ one category of which we have an interest here was regarding ‘consumers having to pay more than reasonably expected or assuming disproportionate burdens’.
Though the high court has yet to actually say that these charges are illegal per se but ‘penalties’ and ‘unfair’ terms are voidable.
(source) Contract law by Mindy Chen-Wishart
But have no fear! on the 5th of April the Office of fair trading gave a press release on matter
This stated:
‘A default charge should only be used to recover certain limited administrative costs. These may include postage and stationery costs and staff costs and also a proportionate share of the costs of maintaining premises and IT systems necessary to deal with defaults’
This then opened the flood gates for claims back from the banks.
The position at the moment is that the OFT and Banks are taking a test case to the high court to determine if these charges are deemed legal or not and it will be heard in early 2008, this in effect has limited the courts that will listen to such claims till after the verdict.
It is STILL possible to claim from your bank yourself though…How?
Step One: Make another Bank account.
Why you ask? The banks (Rarely) when paying up will say ok here is your money and –> there is you account. So making another bank account at another bank is part of your safety net.
Though you should not worry as The Financial Ombudsman has recently ruled against a bank for doing this, so if they do close your account you can make an official complaint against them.
Step Two: Grab your statements
Now due to some legal redress rule you can only claim back from banks charges from the past six years (still £5 per month for 6 years = £360!). So grab all your statements and a highlighter and get-a-going.
…but of course if you’re like me you can’t even find last months’ statement!
If you have a online account all is hunky dory and you can grab them all from there, if you don’t then you will have to call up your banks for a copy. The will most likely charge you up to £10 for this but they cannot refuse to give you this information as they are obliged to under the Data Protection Act.
(sample letter by http://www.moneysavingexpert.com)
Step Three: Send the first letter
I will not detail what to write in the letter as there are already a few samples around the internet but rember on a average the courts will grant you 8% interest add that as well:
http://www.moneysavingexpert.com/redir/c129d2ac
http://www.bankcharges.info/resources/letter_1.doc
http://www.bankcharges.info/resources/letter_2.doc
Step Four: Refused or Partial?
In some cases banks will refuse you the money or give you a partial now you have to decide whether a) you want to continue to pursue the matter (you do 
) or b) do you want to accept the partial amount?
Well discussing the second option first, you are getting some money back that you thought was lost to you, congratulations. If the difference between the amounts is only the extra interest you asked for on top I would recommend dropping, though it should be paid you have your money back and are at a sense back to square one, but ultimately it is up to you.
Now if you have been refused that is a different ball game, it is time to take your ink pen out again and get a writing. Again Banking Charges have a nice sample letter:
http://www.bankcharges.info/resources/step_2_letter.doc
Step Five: Still no
This is the bit to use that bat you have….no I kid, you have now two options A) take them to court or B) complain to The Financial Ombudsman Service.
Taking option A first, I personally would not recommend this again for two main reasons, this course of action will cost you and such costs may not be refunded to you, resulting in a possible deficit, and secondly because of the state of the law, as mentioned before some courts may not hear the case until the 2008 judgment. If you are still adamant head over to www.lawsociety.org.uk and find a local solicitor to help you in the matter, or alternative your local Citizen Advice Bureau.
The Financial Ombudsman Service is an independent service for settling disputes between financial companies and their customers and the service it provides is completely free.
The FOS will usually only assist in your case if it has been over eight weeks since you sent your first complaint letter.
You can contact them via their website or by calling 0845 080 1800. They will then ask you to fill in a form (sample and guide by money expert below and remember to ask for interest)
You should also send copies of any previous correspondence you’ve had with your bank.
The FOS will then send you a confirmation letter that it will look into your case and get back to you if it needs any more information, but otherwise you can then leave the matter to it to resolve and it’ll contact you with any offers from your bank
Conclusion
As you can see information is thick regarding this and the outcome of the future case can make or break this field.
Before starting your own claim I would recommend reading on the subject a bit more and would recommend Bankcharges.info and moneysavingexpert.com.
If on the other hand you think that this is a bit too complicated or time consuming there are a number of companies that will do this all for you for a nominal fee. I myself would recommend www.claimitback4u.com they are a nice and friendly bunch always helpful and are knowledgeable about the area. They have dealt with a huge number of claims already and have a great track record, and the prices are very competitive. They charge you a one of fee of £50 for a unlimted number of claims; working on a no-win no-fee basis it is a good idea to give them a try.
Give them a go and let us know how your progress goes.
Disclaimer
All information in the article, facts figures are legal assumptions are the view of the author/s or of the sources of from which derived.
The author/s holds no liability for the accuracy and results of which may occur due to reliance on the subject matter, though all care has be given to all the information as accurate and correct as possible.
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