The Independent

Consumers challenging charges for overdrafts and bounced cheques have claimed back £2.6bn from Britain's financial institutions, according to figures that suggest the rebellion against the banks is taking place on a greater scale than imagined.

In a dramatic victory for The Independent's six-month assault on the charges, an estimated three million people have obtained a full or partial refund from their bank or building society.

The figures come from a YouGov poll which found that more than one third of customers had been charged fees since 2001. Refunds averaged £685. One in 20 bank customers had been billed more than £2,500. Applying the figures to the general population, the price comparison website uSwitch said its research showed that 3.8 million current account customers would have received refunds with a total of £2.6bn.

The British Bankers' Association disputed the figure but declined to give its own estimate of the cost of the revolt against its members.

Campaigners, the consumer group Which? and the Office of Fair Trade believe unauthorised borrowing fees of up to £38 a time are illegal because they exceed costs. But in a deal that has infuriated campaigners, the OFT is allowing banks to continue levying them – while freezing compensation claims – until a High Court test case in January.

From its polling of 4,000 customers, uSwitch said Lloyds was the most aggressive big high street bank, billing £800 over the six years, with a £30 fee for an overdraft. But it said Abbey was the most prolific, charging £1,376, or £230 a year.

As the campaign against charges has gathered pace, millions of forms challenging the banks and threatening them with legal action have been downloaded from the internet. Martin Lewis, whose moneysavingexpert.com has received more than three million downloads – believes a further £500m to £1bn in refunds is currently frozen pending the OFT case.

If uSwitch is right, the banks have been paying out far more money to aggrieved customers than estimated by City analysts, who have hitherto underestimated the scale of the revolt.

The investment bank Credit Suisse suggested earlier this year that the revolt would knock £200m off the banks' interim profits. In fact, the five biggest groups – HSBC, Barclays, RBS Group, HBOS and Lloyds – paid out a total of £400m in the first six months of 2007. Given that those five have 65 per cent of the current accounts in the UK, the total level of refunds so far this year may be £550m.

Campaigners have hailed the amount being back paid as an example of people power. "There is a massive sense of empowerment. We get letters and emails saying: 'This is the first time I have stood up to an organisation'," said Marc Gander, of the Consumer Action Group.

"The strength of feeling is enormous. We are talking about people who have had their entire lives compromised; their families compromised and their businesses compromised, simply for fees that will turn out to be illegal."

Angela Knight, chief executive of the British Bankers' Association, said uSwitch's figures were "misleading, and to portray the industry in this way is totally wrong ... We are working with the statutory consumer protection authorities to bring about a legal and fair resolution of the debate over the fees we levy for unauthorised overdrafts."

The campaign against the fees began in earnest last year after a Plymouth law student, Stephen Hone, objected to two £32 charges levied by Abbey and looked up the law books. There, he found the 1999 Unfair Terms in Consumer Contracts Act, which allowed him to reclaim his charges and he sued the bank. Abbey paid £840 before the case reached court, sending shock waves through the financial system.

Opposition snowballed in February this year when The Independent put its campaign on the front page three times in a week. National television bulletins and other national newspapers took up the story and hundreds of thousands of claims flooded into the banks and the Financial Ombudsman Office, which at one stage was receiving 3,000 complaints a day.

Customers have successfully claimed fees running into tens of thousands of pounds. In many instances, the banks have settled straight away, but in others they have engaged in delaying tactics, obfuscation and retaliation by closing accounts. Two hundred people complained to the Information Commissioner that the banks were not detailing past charges in accordance with data protection rules.

Tracy North, of uSwitch, said the campaign against penalty fees had hit a peak, but warned that there were £731m of charges frozen pending the OFT case, saving financial providers £20m in interest alone.

"For the past six years, banks have been able to carry out this practice ... it's good so much money is now being refunded today. But there's a lot more to be refunded." A Which? spokeswoman, Helen Ainsworth, said: "The reason this campaign has struck such a chord with people is because they feel these charges are disproportionate and unfair considering the cost to the bank."

Banks are estimated to make between £1.2bn and £4.7bn a year from charges when their costs are put at no more than £2 to £4 a time, taking into factors such as offices and staff. In all but a few cases, financial institutions have paid out before they have reached court in what campaigners believe is an attempt to prevent the charges being ruled illegal. If they were declared illegal, banks might have to stop charging the fees, which are a useful source of revenue.

The Consumer Action Group and Moneysavingexpert.com have set up a £120,000 fund to establish a legal precedent.

People can claim back unauthorised borrowing fees on current accounts, credit card charges for late payment and mortgage exit fees. Only current account fees have been frozen, though some courts may still accept new cases.

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Banks are still facing a mass revolt from customers despite the halting of some claims in the run-up to a test case in the High Court, The Independent has learnt.

Several county courts are hearing cases begun before the announcement of the Office of Fair Trading (OFT) action as well as hearing entirely new cases.

Under a little-publicised agreement between the banks and the OFT, customers can still obtain a refund if they can prove the charges have caused them "hardship". In addition, claimants can still obtain refunds for two types of bank charge unaffected by the test case involving fees on current accounts: credit card late payment charges and mortgage exit fees.

As well as claiming back credit card fees dating back years, people are also successfully challenging fees set at a lower £12 rate intended to satisfy the regulatory authorities, say campaigners.

On mortgage exit fees, banks and building societies are automatically repaying anyone who asks for a refund of increases in the cost of winding up a home loan, as part of an agreement with the Financial Services Authority.

Payments may also be obtained for the entire exit fee if customers can persuade courts that it cannot be justified on the basis of its costs.

All of these routes to a refund have kept the pressure on the banks in the revolt against penalty fees, which has been championed by The Independent. The consumer group Which? called on bank and building society customers to continue to submit claims rather than wait for the result of the OFT test case, which will be heard in January.

High street banks and building societies are estimated to make up to £4.7bn a year from fees for unauthorised borrowing, which campaigners say breach the Unfair Terms in Consumer Contracts Regulation 1999 because they exceed costs.

The OFT is hoping the case will clear up whether banks are allowed to charge up to £38 a time whenever a current account customer goes over their overdraft limit or bounces a cheque.

When the OFT announced its case last month, it agreed that banks could stop voluntarily settling cases, and the Financial Ombudsman Service suspended payouts.

Campaigners were furious when it dawned on them that the banks could continue levying the disputed charges. However, banks are still being pursued through the courts, which are making decisions on a court by court, and case by case, basis. Although many county courts have stayed all cases, some such as those at Newcastle and North Shields are hearing existing ones. Courts at Peterborough and Croydon are still considering new claims.

Campaigners are urging no let-up in the revolt prior to the conclusion of the OFT case, which could be delayed by further action at the Court of Appeal or the House of Lords.

A Which? spokeswoman said: "There is no reason why people should think the whole thing has ground to a halt. The banks would like to think that, which is exactly why they shouldn't stop downloading the letters and making the claims."

Marc Gander, of the Consumer Action Group, said court actions were proceeding all the time despite the OFT case. He urged customers to continue demanding refunds and to lodge court claims where applicable to ensure they would receive payments once the test case concluded. "The pressure has to be kept up," he said.

Although financial institutions have raised other fees, particularly on credit cards, to make up for the shortfall, the revolt has wiped £400m off profits since January.

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For many of the hundreds of thousands of bank customers who are seeking a refund of unauthorised borrowing charges, battling the complaints system has been a frustrating experience.

Some banks have been settling all complaints without a fight. Others have only refunded the fees of those customers making the most fuss. In the worst cases, banks have threatened to close the accounts of customers complaining about the charges. And many more cases are held up at the Financial Ombudsman Service, which does not have the resources to cope with such a deluge of disputes.

The Financial Services Authority, Britain's chief City regulator, confirmed this sorry state of affairs yesterday. It warned that the approach to complaints about unauthorised borrowing charges varies widely across the banking industry and that not all current account providers have been handling complaints properly. Some banks, the FSA says, have even misled customers and two are now facing possible disciplinary action.

It's comforting to know that the watchdog has been keeping such a beady eye on an issue that has prompted up to 2 million bank customers to consider seeking a refund of charges paid over the past six years. What a shame, however, that the FSA's warning yesterday came just 18 hours after it announced all banks could suspend the handling of claims for refunds, pending the outcome of a test case launched by the Office of Fair Trading.

Unfortunate timing, to say the least - the FSA now finds itself rebuking leading banks for their behaviour over borrowing charges while simultaneously telling them not to worry about the issue for the time being.

The OFT's announcement on Thursday evening is also an odd one. It's perfectly sensible to ask the courts to decide whether banks have broken the law in charging, for example, a customer £35 for breaching his overdraft limit when most independent analysts believe processing such a breach costs nowhere near that much. But why on earth has the watchdog only just come up with this bright idea?

This is an issue that first came to light more than a year ago, when the OFT ruled that similar charges made by credit card companies were illegal and unfair contract laws. The watchdog subsequently launched a review of unauthorised borrowing fees in the banking industry and several months ago broadened out its investigation into a full-scale study of bank charges.

Consumer groups had hoped for a ruling on the specific issue of unauthorised borrowing fees before Easter. If the OFT had been able to come to a conclusion on its own back then, it would have been doing the banks a favour too. As it was, both complaints and complaints handlers have had to work in the dark, unclear on the exact legal position in these cases.

There can be no certainty about how the OFT's test case will work out. Customers can't assume they'll be entitled to full refunds and the banks must be concerned that the courts will rule against them. Either way, there could be years of appeals, with tortured arguments about the minutiae of different cases.

It would have been so much simpler if the regulator could have come to its own view. The OFT seems to have been put off by anxiety that clamping down on one set of bank charges might lead to higher fees elsewhere - possibly even the end of free banking. That debate, however, misses the point; these particular charges are either illegal or they're not.

The launch of this test case is just the latest way in which the OFT has opted out of making a decision. It will mean further delays - and possibly lengthy ones - in the settling of these cases. And it's bizarre that if the regulator really felt unable to issue its own ruling, it did not pursue this route many months ago.

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Thousands of people will be left in limbo from today as Britain's banks launch a landmark court case in a bid to prove their charges for unauthorised borrowing do not break the law.

The Financial Services Authority and Financial Ombudsman said they would grant the big banks a waiver on complaints handling until the end of the court case, which pits the banks against the Office of Fair Trading.

Hundreds of millions of pounds is at stake in a case that could see the end of free banking if the banks lose. The waiver means that thousands of people who have lodged complaints about charges will be left hanging on for many months as the case goes works its way through the courts.

Existing complaints will, in effect, be frozen, while new complaints will only be logged. Those who have already received compensation offers will be able to accept them, but if they are unhappy they too will have to wait until the case is over.

The banks have faced a flood of complaints from consumers, angry at the fees levied when they accidentally slip into the red without first getting authorisation.

The case has been joined by Abbey, Barclays, HSBC, HBOS, which owns Halifax and Bank of Scotland, Lloyds TSB and Royal Bank of Scotland, the owner of NatWest. Nationwide Building Society has also signed up as have the Clydesdale and Yorkshire Banks.

Clive Briault, FSA managing director for retail markets, defended the decision to grant the waivers. He said:

"The FSA supports the test case on unauthorised overdraft charges as the current situation does not provide certainty or consistency for consumers or firms. We have granted the waiver to help facilitate this test case. We believe it is not in the interests of all consumers for complaints to continue to be dealt with in the current inconsistent way."

The British Bankers Association said banks believed the fees customers pay for unarranged overdrafts were "fair and clear".

Chief executive Angela Knight said:

"Establishing legal clarity on the issue of bank charges is of paramount importance, not only for the banking industry, but for all customers now and in the future."

The BBA admitted there was no way of saying how long complainants will have to wait for answers because "that will depend on the court process". Cases will be brought in Scotland and Northern Ireland as well as England and Wales.

The banks' decision to fight a test case follows the launch in May of a full-scale OFT investigation into whether banks are making unfair charges on current accounts. The watchdog has already ruled that penalty charges in the credit card market have been illegally high. But in March the OFT said it was concerned a similar ruling on overdraft fees - which can be as high as £35 a day - might have unintended consequences for the wider current account market. It subsequently deferred a ruling specifically on such charges while it ran the wider investigation.

The OFT inquiry, which is due to be completed by Christmas, is examining if the "provision of so-called free banking" is explained clearly to customers - particularly whether account holders understand when charges do become payable.

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Britain's largest banks were threatened yesterday with an imminent test case which aims at settle the growing number of bank charge actions, as a judge at Leeds mercantile court found himself scheduled to hear 250 cases in a single day.

The banks settled dozens of the cases out of court at the eleventh hour, agreeing to refund thousands of pounds in fees to their customers. But the judge, Simon Grenfell, heard 75 cases, finding in the favour of the complainants in the majority of them.

Judge Grenfell said that the courts had become inundated with bank-charge cases, and threatened to use some of yesterday's cases as legal precedents. That would be significant because, while hundreds of cases have already been heard in mercantile and county courts around the country, none have so far set any kind of precedent.

Last-minute settlements have become a regular occurrence, with the banks regularly waiting to hours or even minutes before a hearing before agreeing to settle. Earlier this month, a senior commercial judge hit out at the banks for their delaying tactics, saying they were deliberately asking customers for information that they had already supplied, so as to stall the legal process.

There are still hundreds more cases scheduled to take place at courts across the country over the next few months, while the Financial Ombudsman Service has also seen a large leap in the number of claims relating to allegedly illegal bank charges.

The run on the banks began at the start of this year, when the Office of Fair Trading said it was going to investigate the legality of bank charges in the UK. Thousands of bank customers, spurred on by consumer groups and claims farmers, complained to their banks without waiting for the OFT's conclusions, demanding their banks charges from the past few years were refunded.

A senior commercial judge has criticised British banks, accusing them of using delaying tactics to prevent customers from successfully suing them over illegal charges. Judge David Mackie QC made the comments as he dealt with more than 30 cases at London's Mercantile Court, which has been flooded with cases brought by bank customers.

In several cases, the banks have asked customers to resupply them with information they had been given months earlier. Judge Mackie said that there was no reason why the banks could not have settled several of the cases within weeks of receiving the complaints.

The judge singled out Lloyds TSB, which settled one complaint the night before it was due to be heard in court. He said there was no good reason that it could not have settled the case sooner, and awarded the claimant an additional £100 for the fact that he had been forced to take the day off work for the case.

Although Judge Mackie upheld most cases, consumers suing their banks have had mixed results. Last month, a county court judge in Birmingham ruled in favour of Lloyds TSB, dismissing a claim for £2,545 from a customer, Karen Berwick. He concluded that the bank's charges were legitimate for servicing an overdrawn account.

Many consumers have received payouts without a fight, while others have been successful in the courts. The banks are now considering taking a test case to get the law clarified. None of the cases has so far set any legal precedent.

Brian Capon of the British Bankers Association said the banks consider the charges to be perfectly legal, and said that consumers who had a problem should take it up with their bank in person.

Helen Ainsworth of Which?, the consumers' association, warned that bank customers were better off staying out of the court system altogether - even if their bank rejected their claims after an initial complaint. "The Financial Ombudsman Service (FOS) is free, and all cases that have been through the FOS so far have been settled," she said. "Also, once you've made a complaint to the Ombudsman, see it through - don't then start applying to the courts. If you're already in the courts system, then make sure you're as prepared as you possibly can be - get together as much evidence as you can."

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Britain's banks are a force to be reckoned with, but for months now, the headlines have been about "David and Goliath" stories of customers seeking to claim back "unfair" penalty fees from these giants. The campaign has gained pace, and thousands of people are now trying to reclaim thousands of pounds in charges.

But campaigners were dealt a blow last week after news emerged that Lloyds TSB had won its second battle in the courts against a customer. Builder Julian Rudd took his case to Lancaster County Court last month, claiming £3,000 in relation to unauthorised charges and interest. But the judge dismissed his legal challenge on the grounds that Rudd had failed to state an adequate claim.

The ruling, on 11 May, came days before a similar challenge by Kevin Berwick, another Lloyds current-account customer, was lost in court. His claim for £2,545 in fees and interest, brought before Birmingham County Court, was dismissed on the grounds that charges levied were a legitimate fee to service the account.

Berwick had argued that the charges – as high as £30 – for going over an agreed overdraft limit were unreasonable, and that he should be reimbursed for deductions from his account. But the district judge in the case said Berwick had failed to satisfy the court that he had any ground in law to recover the charges.

The fact that a second case has come to light is a bitter blow to the thousands of people still hoping to reclaim these charges from their bank, encouraged by an ongoing Office of Fair Trading investigation.

Until these cases emerged, consumers had been confident that claiming back their bank charges would be easy. But consumer groups are urging consumers not to be disheartened by the news.

Martin Lewis of MoneySavingExpert.com points out that the vast majority of people do get a payout without going to court, but he adds that the message to take is the importance of filing your claim correctly. "What we're starting to see is a minuscule number of cases in which claimants will have to go to court. If this is the case, it is worth doing your preparation. If you don't turn up, you cannot expect to win."

Further, as the consumer group Which? explains, both cases to date have been County Court rulings, which do not set a precedent that other courts have to follow.

In a statement, Lloyds said it was "not appropriate to comment on the details of a specific case," but said it would always submit a robust, written defence to the courts. "Our customers are at the heart of our business and we never want to see them in court, which is why we may also offer to settle matters out of court as we are entitled to do."

As a consumer, you should take solace in the fact that the banks are still paying out many tens of thousands a day; for now at least, it seems, the weight of the huge numbers of successful reclaims easily outweighs these two results.

And consumers may be spurred on by the launch of a £100,000 "fighting fund" to help bank customers in their legal battles. This has been pledged by campaign groups including MoneySavingExpert.com and the Consumer Action Group, as well as private individuals, to ensure that people are not deterred from reclaiming fees. The fund will be activated if a suitable opportunity for a precedent-setting bank-charges claim arises.

In the meantime, the message remains simple: customers must go on fighting to reclaim excessive bank charges, especially when figures from the price comparison service uSwitch.com suggest that £2.12bn is waiting to be claimed.

And the signs are encouraging: MoneySavingExpert.com says that more than three million template letters have been downloaded from its website. It echoes the opinion of all the consumer groups in urging people to act now to reclaim charges.

Further, if you do experience any problems – such as your bank refusing to refund any of your charges, or making you an offer you are not happy with – it's worth remembering you can take your case to the Financial Ombudsman Service.

Whatever you do, don't let the banks scare you off – the consumer revolution must go on.

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Banks will stonewall at every stage of a complaint

Are you bigger than your bank? Getting the upper hand in a dispute with a high street institution requires - among a million other attributes - bloodymindedness, tenacity, perseverance, persuasion and grit.

Happily, it appears that tens of thousands of aggrieved customers have these attributes in spades. Good thing too, since the battle to reclaim eye-watering unauthorised current account overdraft charges of up to £39 has taken a new twist.

Following a Birmingham court ruling two weeks ago that saw a judge favour Lloyds-TSB over a complainant, some lenders have seized on it as an extra weapon to fend off customers seeking to take them to court. It emerged last week that both Abbey and the Yorkshire Bank had quoted this case in seeking to rebuff complaining customers.

It's no wonder that desperate banks, punch-drunk from having spent the past three months forking out tens of thousands of pounds compensation outside courtroom doors for fear of setting a very expensive precedent, have latched on to it.

Financial Services Authority rules say any bank is entitled to give its reasons for rejecting customer complaints - and, no doubt, referring to a favourable and high-profile court case is one of them.

Understandably, customers on the receiving end of such behaviour won't appreciate such tactics - as legitimate as they appear to be - and will, justifiably, feel undue pressure to comply with the bank's will.

Those embroiled in a dispute over unfair bank penalty charges, should remember to turn to the Financial Ombudsman Service the moment their complaint starts to sour. Its intervention on behalf of the consumer usually sees a contested claim settled rather promptly.

As its annual report published last week showed, its staff are up to their collars in bank account charge complaint queries. That is both a good and a bad thing.

While it means that consumers can at least rely on the heavy guns of the Ombudsman to boom on their behalf, the sheer volume of bank-related angst indicates a long struggle ahead for everybody.

The pressure over bank charges shows no sign of letting up. Consumer groups are on tenterhooks for a decision in the case between Tom Brennan and NatWest over the legality of penalty fees. If the judge, who is currently considering his decision, finds against Mr Brennan, it could prove a major setback for consumers.

In the meantime, banks will shore up their own defences and continue to prevaricate and stonewall at every stage of a complaint.

The Office of Fair Trading's own investigation into current account penalties simmers in the background. For all sides in this battle of wills, it looks likely to be a long, hot summer.

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A bank customer was so denuded of money by "disproportionate and unfair" charges that he was left penniless on his 30th birthday, a court heard yesterday.

In a test case against NatWest, Tom Brennan, a barrister, claimed that its charges had been so high he had experienced difficulty paying rent and expenses during his legal training.

He spoke of the distress caused by penalty fees on his current account as he fought a civil action against the bank, which he is determined to shame in court.

According to Which?, British banks are making up to £4.75bn a year from penalty fees, which can be up to £38 for a bounced cheque or direct debit. Campaigners say the real cost is about £2.50.

Mr Brennan is asking the Mayor's and City of London County Court to rule that his charges were so high they were illegal. If he wins, other bank customers may be able to bring similar claims and the industry may have to cut charges. But if he loses, the campaign for refunds - backed by The Independent - will experience a setback.

Mr Brennan faces being declared bankrupt if costs are awarded against him, ruining his legal career. The lawyer, who was charged more than £2,000 in fees, has declined an out- of-court settlement from the bank of £4,000. As well as a full reimbursement, he is seeking damages for the stress he encountered and the difficulty he had paying rent and buying necessary items.

He is also seeking exemplary damages, which are awarded when a wrong is deemed to be deliberate, malicious or negligent. NatWest is seeking to have the case thrown out before a trial.

At court yesterday, Mr Brennan, of Lewisham, south London, said that on his 30th birthday, he was so hard up he could not afford to buy a single pint of beer.

Explaining the essence of his case, he said: "It is a fact of life that we can't always keep to financial commitments. But that doesn't justify any bank acting unlawfully in charging disproportionate fees."

At an earlier hearing NatWest said that Mr Brennan should not be trying to be a "guardian of consumer interest" while the Office of Fair Trading (OFT) is investigating the issue.

Mr Brennan responded yesterday saying that the OFT could not force banks to pay back charges; it could only stop them from levying future fees.

Judge Simpson told the newly qualified barrister: "It does seem as though you are conducting a crusade." Mr Brennan replied: "Lives are ruined by these types of charges ... this is not a crusade, all I want is justice.''

Ben Pilling, for NatWest, said allowing the claim to go forward would "eat up the court's resources in a way that was disproportionate''.

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Yesterday's ruling does not mean that if you are claiming back your bank charges, you should abandon your case.

All the campaigners say that you should continue and that you still have a very high chance of winning. But not perhaps the certainty that was previously thought.

After all, the Lloyds TSB case was the first time that the legality of unauthorised borrowing charges had been tested in court. And the bank won.

In every other known case until now, the banks have settled cases before court, sometimes on the day of the case.

It may be that Lloyds TSB carefully selected Kevin Berwick's case to make a stand, and that his case is not typical. It must be noted that the bank had already offered a settlement to Mr Berwick, indicating it was not determined to enter the courtroom. It may also be that other judges, perhaps more senior judges, would not agree with District Judge Cook's ruling.

A test case involving a barrister, Tom Brennan, should shed further light on cases later this year.

In the meantime, anyone who has been charged penalty fees in the past six years should certainly consider a claim. Perhaps, though, until the legal situation is clearer, claimants should accept a reasonable offer of settlement - say three quarters of the amount claimed.

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