Claim Bank Charges Back - Helping you to reclaim Unfair Bank Charges!

The battle on bank charges is not over yet, but now is a good time to make sure that you are getting the best from your bank account, says Emma Simon

Bank customers are one step nearer getting their overdraft charges refunded last week, with consumer groups claiming victory in the first round of the High Court battle. The judge in this test case ruled that these charges fall under the "unfair terms" in consumer contract legislation. Consumer groups said this paves the way for the Office of Fair Trading to determine whether these charges are "fair" or not.

But the banks point out that the judge also made it clear that it is legal to apply a charge for this service.

Let's be clear: the court ruling did not state whether the £25 overdraft charge, £35 unpaid item fee or £25 paid referral fee - which are routinely levied when you breach overdraft limits - are excessive or unreasonable. But given that the OFT had previously put pressure on the banking industry to reduce penalty charges on credit cards , consumer groups remain hopeful that at the end of this court battle, banks will come under similar pressure to reduce overdraft charges. However, this is unlikely to happen anytime soon. This is just the first stage: further legal action will clarify aspects of this judgment and then there could also be appeals.

Which? has - optimistically - called for the banks to "concede defeat" and introduce lower charges. But the British Bankers' Association says this is very much "the start of the process".

Says Angela Knight :

"This is the first step of a complex legal process. The judge will decide how the law should be applied, and will set out the next stage of this test case at the end of May."

So what does this mean for those looking to reclaim overdraft charges? Since July last year all refund claims have been frozen, pending the outcome of this case. The Financial Services Authority has yet to give the green light for these claims to proceed. The judge could lift that freeze next month, but it is more likely it will remain in place until the end of the legal action - which could take another two years. This is why bank customers are being urged to get the most from their bank account today.

If you have been hit with overdraft charges then make sure you lodge a claim, even if it cannot proceed at present. The banks still have to register your claim, and when the legal action is finally resolved you may be able to claim for penalties paid over the previous six years, starting from the date the claim was registered. Delay and you could find that fees paid in the past fall outside this timescale.

In the meantime customers should make sure they are not paying unnecessary charges, particularly on overdrafts.

A number of banks have already altered the way they charge for overdrafts. First Direct and HSBC, for example, have done away with many of the contentious unauthorised overdraft charges completely. Anyone with one of these banks who breaches their limit will be charged the same interest rates as they would on an agreed overdraft facility (12.9 per cent at First Direct; a more expensive 18.8 per cent with HSBC).

In comparison, most high street banks charge almost 30 per cent interest on unauthorised borrowing. But far more costly are the associated fees.

HSBC and First Direct do not charge an automatic penalty fee for those breaching limits but other banks charge between £25 and £35, although HSBC and First Direct does charge £25 if they bounce a cheque or a direct debit - but other banks also impose this charge.

If you are the prudent type who rarely breaches your overdraft limit, an HSBC or First Direct account could prove cost-effective as it does not harshly penalise those who inadvertently make a minor mistake.

First Direct is, at first glance, the better option because it has an interest-free overdraft of £250 and then charges a lower rate on agreed overdrafts. But this account is only suitable for those who deposit at least £1,500 a month into their bank account: deposit less and you'll be hit with a monthly fee, wiping out the benefits of the cheaper overdraft charges.

As both banks charge a fee for those who request additional overdraft facilities more than twice a year, it is unlikely to be a particularly good bet for those who breach lending limits on a regular basis, or regularly chop and change their borrowing needs.

Alliance & Leicester has gone one step further and abolished interest charges on overdrafts altogether. It has introduced a 50p charge that is levied every day you spend in the red (up to a maximum of £5 a month). This makes it very cost-efficient for those who have an agreed overdraft limit but only use it for a limited time each month.

For those who exceed their overdraft limit the charges are significantly higher, though: £5 a day, with no cap. A&L also charges fees for paid or bounced payments that take customers beyond their overdraft limit, although at £25 each these are marginally cheaper than the charges levied by its main rivals.

For those who occasionally spend beyond their agreed limits this could prove cheaper, provided they stay in unauthorised borrowing for a very short time. As our table shows, if you stay in the red for just a couple of days, the fees on this A&L account would be considerably less than with Barclays, Lloyds TSB or NatWest. However in this scenario it is not as competitive as HSBC or First Direct.

Of course a flat fee, as opposed to a sliding interest rate, favours those with higher overdraft balances. Overdraft charges are just half of the equation. If you never dip into the red, authorised or not, look instead at the interest paid on credit balances.

A&L again leads the field, paying a rate of 8.5 per cent for those in credit. But don't forget that although the headline rates look tempting, this interest is generally paid on relatively low sums, as money deposited into a bank account is spent during the month.

For many people service is why they pick and stick with a bank. First Direct scores highly on various customer satisfaction surveys, carried out by the likes of Which?, as do some of the other institutions, in particular Nationwide building society.

Andrew Hagger of Moneyfacts says: "Don't wait until this lengthy legal action is resolved before moving your bank account. Lodge a claim if you have been hit with penalty fees, then shop around for a better banking deal. Many banks have overhauled their charging structures so look for an account that best meets your requirements.

"The added pressure on consumer finances means that more people are in danger of exceeding their borrowing limits and being hit with charges they can ill afford. If you are getting near your limit ask for an increased facility to prevent you incurring unnecessary and unwelcome bank charges."

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