The Guardian

Plans by millions of bank customers to reclaim "unfair" bank charges were yesterday thrown into doubt after Lloyds TSB became the first bank successfully to defend a customer's claim in court.

Thousands of consumers have won refunds of overdraft charges and other penalties after threatening legal action on the grounds that the charges bear no relation to the cost to the bank and are illegal. Banks have largely settled out of court rather than reveal the actual cost of overdrafts and bounced cheques. More than 3 million bank customers have downloaded specimen letters to bring similar claims.

Yesterday Judge Cook at Birmingham county court dismissed a claim against Lloyds for £2,545 from Kevin Berwick. The judge declared the charges were legitimate fees for servicing an overdrawn account. "Having held that the charges complained of are not charges for breach of contract but part of the price of the services provided by the bank ... he has not satisfied me that he has any ground in law for recovering from the bank the amount of any charges which he has paid to it," he said.

Lloyds TSB said it was pleased with the ruling. "The court has agreed with us that these are charges for a service and not default or penalty fees." It would not take a harder line with other claimants, but "continue to review each case on its merits". Mr Berwick is considering an appeal.

Marc Gander of the Consumer Action Group said he was disappointed.

"We feel the judge has not considered the fact that disguising penalties as a fee for a service is a very common device for circumventing established law."

Campaigners said the ruling was not binding on other courts.

Martin Lewis, of MoneySavingExpert.com, said:

"To all those reclaiming charges it's a case of 'don't panic'. Across the country the banks are still paying out many tens of thousands of pounds a day and the weight of huge numbers of successful reclaims so far easily outweighs this one anomalous result. The banks seem to have got lucky with a sympathetic judge."

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A bank customer's legal bid to claim damages over "unfair" current account fees resumed yesterday with accusations that banks were trying to operate "above the law".

Tom Brennan, a recently qualified barrister, said unauthorised overdraft charges were "unjust" and "unlawful", adding that financial institutions were abusing their power to avoid seeing the issue played out in court.

NatWest defended its position by stating it did not accept that its fees were unlawful and called on the court to strike out the claims made by Mr Brennan.

The former NatWest customer is taking the high street bank to court in relation to around £2,500 that was taken from his account in unauthorised credit and bounced payment fees.
Alongside full reimbursement of the charges, he is calling for aggravated damages to be made in recognition of the stress he incurred and the difficulty he had in paying rent and purchasing necessary items.

In addition, Mr Brennan is asking for exemplary damages, which are awarded against a defendant when a wrong is deemed to be deliberate, malicious or negligent, to be made against the bank.

NatWest, which has already offered Mr Brennan almost £3,800 to settle out of court, said there was no ground for Mr Brennan to pursue his calls for damages.

Contrived claims

The bank's legal representative, Ben Pilling, told Judge Simpson at the City of London county court: "These elements of the claim are contrived. The facts of the case will not support them and they should not be permitted."

He also argued that it was not Mr Brennan's role to seek a test case, especially at a time when the Office of Fair Trading (OFT) was looking into the issue of current account pricing.

Mr Pilling said: "The court should not assist Mr Brennan in his campaign to become the guardian of consumer interest.

"The OFT has the resources to look at the question in a thorough and detailed manner. In these circumstances it would serve no purpose for Mr Brennan's case to be allowed to proceed.

"It would be a very expensive waste of parties' time and money."

In response, Mr Brennan said: "I am not a campaigner or a consumer champion, I am simply a newly qualified lawyer. I see an injustice and I see an abuse of power and I seek to stop that."

He argued that striking out his claims on the basis that NatWest offered him a full reimbursement would "drive horse and coaches" through consumer protection legislation.

"The defendant is not entitled to force money into a claimant's account. It is an abuse of power and an abuse of process," Mr Brennan added.

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A bank customer's legal battle to obtain damages over "unfair" penalty charges resumed today.
Recently qualified barrister, Tom Brennan, is taking NatWest to court in relation to £2,500 that was taken from his account in unauthorised credit and bounced payment fees.

Alongside full reimbursement, Mr Brennan is also seeking exemplary damages, which are awarded against a defendant when a wrong is deemed to be deliberate, malicious or negligent.

A court hearing earlier this month had to be postponed after the sitting judged deemed that not enough time had been set aside to hear the case.

Speaking at the City of London county court, Judge Simpson told Mr Brennan, NatWest's legal representatives and a courtroom packed with journalists that he expected the case would be "closely argued" on both sides.
NatWest, which has already offered Mr Brennan £4,000 to settle out of court according to reports, is attempting to get the court application for exemplary damages thrown out.

If it fails, the bank could be forced to justify fees that can be as high as £38 for going just a few pounds over an overdraft limit.

Banks and building societies are already under pressure over the issue following an announcement last week by the Office of Fair Trading that detailed a far-reaching probe into the pricing of current accounts and penalty fees.

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Cases settled to stave off ruling that would apply to all 'victims' of excessive fees

More evidence emerged this week of how banks are backing down when customers challenge them over "illegal" penalty charges.

On Thursday, Leeds county court was packed by people seeking refunds, plus the banks' lawyers. Almost all the cases were settled at the 11th hour. The banks are desperate to avoid an adverse court ruling that they would then have to apply to all customers.

The Leeds case management conference came on the same day that Office of Fair Trading boss John Fingleton launched a far-reaching study into current account pricing that will sit alongside its existing inquiry into fees for unauthorised overdrafts and bounced cheques.

The 77 demands for repayment of allegedly unfair charges had already been moved from Leeds small claims court, which was buckling under the weight of bank charge cases, to the mercantile division of the high court, where a test case could prove binding on the banks and their customers.
Judge Roger Kaye QC was ready to choose a representative case, and even hinted to the banks' lawyers that it might help if they underwrote the costs on both sides to allow one to proceed. None of the major banks in court, including Natwest, Barclays, Halifax and Lloyds TSB, looked very keen.

The judge noted that another 70-odd cases were due next month in Leeds alone, following 100 in February, most of which saw the banks settling at the last minute. The same happened on Thursday as the judge patiently adjourned while litigant after litigant was escorted into a side room with bank lawyers and emerged smiling. Out-of-court settlements were negotiated by all litigants, apart from a handful of cases adjourned for technical reasons or because one or other of the parties failed to turn up.

Victoria Hardwick, 39, a housewife with three children from Otley, near Leeds, was celebrating winning back £2,500 in charges. "There are so many people like me doing this now because the banks don't seem to know what they are doing. But until we have got some sort of law, or somebody manages to get their case to court, the banks are going to carry on charging people excessively," she said. Ms Hardwick was phoned at home the night before the hearing by Barclays, offering a deal, but she came to court to get it in writing.

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Current accounts costing £200 a year could become the norm after the Office of Fair Trading launched an inquiry into whether bank and building society penalty charges were subsidising "free" banking.

The OFT said customers might benefit from up-front fees if the move brought greater transparency to current accounts. It said a lack of transparency about fees and interest rates led to a lack of competition and prevented customers from judging if it was worth switching to a rival bank.

Some banks have imposed charges on current accounts, most notably First Direct. It charges £120 a year unless customers transfer £1,500 a month into their account or use another product. Most banks have also introduced so-called package accounts, costing upwards of £200, which include "free" travel insurance and car breakdown cover.
The OFT review will examine whether competition would be improved "if there were a shift away from the widespread provision" of free current accounts.

Consumer groups welcomed the investigation, but questioned whether the banks could justify ending free banking when the big five banks alone made profits in excess of £35bn last year. They said delaying a decision on whether to cap bank charges had also left millions of customers to battle in court to reclaim charges.

Banks have come under pressure to cut charges on unauthorised overdrafts. Campaigners allege that millions of customers have been unfairly charged by banks using rules in the small print.

Citizens Advice said in one case a man in Surrey who went 20p overdrawn after a direct debit payment faced charges of £300 and the threat of court action. Other customers have been hit with charges of £800 or more. The charity said: "Bank charges have a disproportionate effect on people on low incomes; one charge may be enough to push them into the red and keep them there."

The OFT aims to publish the findings of its study by the end of the year but did not rule out a referral to the Competition Commission should it need to impose tough sanctions on the banks.

Some observers said they doubted the review would lead to a crackdown. They pointed out that the OFT had already spent a year looking at bank charges only to declare that it needed more time and a wider remit.

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A court bid to seek damages from NatWest bank over "unfair" penalty charges has been adjourned without arguments being heard.

Tom Brennan, a customer with the bank, had lodged an application to obtain exemplary damages from the bank in relation to unauthorised credit penalty fees.

But Judge Peter Simpson adjourned today's session stating that not enough time had been set aside and referred the case to a future date.

Mr Brennan, who recently qualified as a barrister, was at the City of London county court to claim damages against NatWest after he ran up £2,500 in penalty charges while studying law.

Mr Brennan is demanding the right to claim exemplary damages - punitive charges levied when the defendant's wrong is deliberate, malicious or negligent - on top of the cumulative cost of the fees.

He says that while the bank charged him £38 for every refused direct debit or standing order, he has evidence that the cost of dealing with these was no more than £2.50.

Speaking after today's session, Mr Brennan said he was "massively disappointed".

He added: "It should be noted that any delay is going to assist the defendants because only six years of charges can be made.

"Every day that passes, more money is being saved by the bank."

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It calls itself the world's local bank, a slogan which conjures up images of kindly cashiers ushering rich and poor alike through the door to deposit their savings. At the HSBC branch in Canford Cliffs, Dorset, however, customers are judged by quite different criteria.

The bank has offended residents of the elegant seaside village in Poole by banning all but the most well-off from using the branch.

Only customers with £50,000 or more in savings, a hefty mortgage or a salary of at least £75,000 are being allowed to talk to staff. Everyone else has to make do with the cash withdrawal and automated paying-in machines

If they want to be served personally or make an inquiry, they will have to go to another branch.

An HSBC spokesman's attempt to justify the decision only served only to intensify the consternation. "We are trying to treat everyone fairly - not everybody in the world is equal. Some people have higher incomes and need greater services through the bank. These customers demand a better service," he said.

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High-street banks may be forced to admit how much they are paying out in reclaimed overdraft fees when they publish their interim results in the summer. Industry sources believe some of the main players may be required to take provisions to cover the refunds that customers have been urged to claim by consumer bodies and the Office of Fair Trading.

The cost could run to billions of pounds since the consumer body Which? has calculated customers pay £4.7bn a year on default charges, which can include £39 for a bounced cheque and £28 a day when an account is over its authorised limit. Customers can claim back six years of fees.

The banks have so far refused to admit the extent of the claims they are receiving and how much they are paying out. The OFT's intervention has prompted the sector to embark upon a major review of current accounts - the industry's staple product - and how they work.

"All the banks are having discussions about what to do with their business models," one banker said. The industry believes the outcome will take some time to evolve but there is growing debate about the future of free banking. Only customers with basic bank accounts that the Treasury forced the industry to offer to customers on social security benefits are likely to be protected from charges.

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Almost one in three consumers would be prepared to pay for their normal banking services, research suggested today.

In a survey of more than 2,400 people, the comparison site MoneyExpert.com found that almost a third of bank customers would pay an average £7.29 a month if it meant their bank would operate more fairly.

The Office of Fair Trading has already imposed a £12 cap on penalty charges levied by credit card providers, and the watchdog is turning its sights to fees raised on current accounts. As a result, there has been widespread speculation that banks will bite back, and recoup potential losses by charging a fee for standard current accounts.

First Direct made the headlines when it announced charges of £10 a month for customers who only held current accounts or paid less than £1,500 a month into their account, fuelling the debate over whether or not the end of free banking was in sight.

According to today's survey, many British consumers believe that fee-based banking may be fairer on consumers. As many as three-quarters of respondents said that paying a fee would be fairer than allowing services to be subsidised by people who regularly have to pay penalty fees.

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The Office of Fair Trading's £12 cap on credit card charges, imposed a year ago, has not cost card providers a penny in lost revenue according to research by uSwitch and may even have helped the industry earn higher profits.

Higher average repayment rates, higher charges for cash withdrawals and higher fees on balance transfers put in place since the OFT ruling have netted the credit card companies at least £815m in new revenues or nearly three times the £300m lost from capping late payment charges at £12.

The research is a setback for the OFT, which is deciding whether to cap current account charges at £12 as well, and makes ominous reading for consumer groups that have championed the case for charge capping.

uSwitch said that since the £12 cap was imposed on credit cards, the average repayment rate for purchases has risen from 15.19% to 16.6%, while for cash withdrawals it has risen even more, from 20.37% to 23.01%. Balance transfer fees have also become standard practice, with rates rising from 2% to 2.5-3% of the amount transferred, while caps on maximum charges have been removed.

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