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NatWest banking customers that struggle to stick to their overdraft limit will be offered the option of paying £10 each month to reduce the potential charges they will incur.

But with the stand-off over bank charges still raging, consumer groups warned that customers may be signing away their right to reclaim charges if they accept the deal.

The NatWest offer allows customers to pay a £10 monthly charge in exchange for lower charges when they go over their agreed overdraft. As well as the £10 fee customers would pay £17 each time they incurred a penalty, instead of charges ranging from £28 to £38 that account holders would normally pay when they go over their overdraft limit without permission.

Gordon Pell, chief executive of retail markets at NatWest said: 'For those who do (use unauthorised borrowing) our new offer could better suit their banking habits and will be available to them as an alternative choice.'

Technically, any customers who incur at least one bank charge a month will benefit from the NatWest offer. They will end up paying the £10 monthly fee plus an additional £17 for each charge. So, one instance of unauthorised borrowing will cost £27, whereas the lowest NatWest charge is currently £28. There is a £38 fee when customers use cheques, direct debits or standing orders that bounce, a £35 fee when cheques are written with a cheque guarantee card with insufficient funds to cover the payment, and a £30 fee (with a maximum of £90 each month) when NatWest agrees to make a 'pay referral', for example a loan or mortgage repayment when there are insufficient funds in the account.

However, the NatWest offer, the first of its kind, did not convince consumer groups.

Which?, which has championed the campaign for bank customers to reclaim bank charges on the basis that they are an illegal term within bank contracts, said that customers could potentially limiting their ability to reclaim by signing up to the offer.

Which? spokesman Doug Taylor said: 'The £10 monthly charge is effectively insurance for going beyond your overdraft limit. The best advice is for people not to get in this situation in the first place and contact their bank if they know they will have to go over their limit.

'But if they do accept this there is a danger that they may only be able to claim back the reduced charges that have been taken, whereas bank customers are successfully claiming back their full bank charges.'

There is currently an Office of Fair Trading investigation underway that is expected to make a judgment on the fairness of bank charges by the end of the year. This could set a maximum level that banks can charge when their customers borrow without authorisation.

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Bank charge victims could face lengthy delays when submitting claims through the courts, strengthening the case for complaining via the free Financial Ombudsman Service instead.

Experts predict court verdicts could come to a halt pending the results of landmark test cases which might take a year.
Such cases moved closer when Alliance & Leicester and Yorkshire Bank said they might defend seven cases between them after a hearing at Hull County Court last week.

Every formal complaint made to the Ombudsman has resulted in a full payout so far, with no bank yet to make a challenge.

In contrast, some banks, such as Lloyds TSB, have won cases in the courts. Those rulings have been used by other banks to put consumers off claiming, though as they do not constitute test cases, they do not set a legal precedent.

In total, banks settled 37 of the 44 cases in Hull last week, paying out more than £50,000 in compensation. Following the rulings, A&L and Yorkshire Bank were told by Judge Ian Beresford to disclose by September 28 the true cost of how much it costs a bank to process an unpaid direct debit or bounced cheque, as neither agreed to settle their cases.

That could prove to be a huge turning point in the battle to win back billions of pounds for consumers, many of whom have been hit with penalties of up to £39 a time, when some estimate the true cost to a bank of a failed payment is around £2.

The Office of Fair Trading has already stated that the cost of penalty charges should be proportionate to what it costs banks to process them. It will make a formal ruling at the end of the year regarding the fairness of current charges. Last year, it set credit card default fees at a maximum £12.

Marc Gander, from the Consumer Action Group, says: 'Charges claims could come to a halt while courts wait for the decision, but that may take a year. What is exciting is that the banks will have to make a full disclosure of their costs of returning direct debits and of processing other penalty charges.

'They will be required to state the cost of manual intervention and disclose in detail how they reach those charges.'

If anyone loses a court case then they will have lost their claim and they cannot complain to the Ombudsman.

That again highlights why it is beneficial to avoid the courts initially, as the Ombudsman's decision is not legally binding on the consumer, so you can still complain to the courts if you lose.

Going through the courts can be an arduous process and many claimants struggle to prepare a case on their own because of the legal complexities. The Consumer Action Group says it had to come to the rescue of several claimants in Hull last week because their claims were of 'poor quality and needed to be re-drafted'.

The Ombudsman is receiving 500 bank charge inquiries a day. Since January, it has received 21,180 formal complaints, while no bank has yet to challenge any claim. Emma Parker, from the Ombudsman's office, says: 'We are still seeing high numbers of cases coming through but the number of enquiries has stabilised.'

Anyone who has been charged a penalty by their bank for going overdrawn without permission, for a bounced cheque or an unpaid direct debit, can claim for charges in the past six years.

First write to your bank for a list of charges over that time, for which banks can levy a £10 fee. It is important not to ask for statements as these will cost a lot more. Then complain to your bank and ask for your money back in full. If the bank says no, or fails to respond within eight weeks, then complain to the Ombudsman.

Do not use a claims handling company as they take up to 40 pc of your compensation, with 25 pc fees being the norm.

The behaviour of claims firms has also come into question over recent weeks. Their regulator, the Ministry of Justice, has ordered some to remove adverts that claimed consumers could not claim by themselves, a statement that is completely untrue.

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A test case that could unleash a fresh torrent of claims for unfair bank charges has moved a step closer.

A county court judge yesterday ordered Yorkshire/Clydesdale Bank to produce a detailed explanation of the high charges imposed on customers who go overdrawn or bounce cheques.

The bank's lawyers appeared in court in Hull to oppose claims by four customers. It will now have until 28 September to produce evidence to justify the charges, unless it decides to abandon the action and pay up.

In all, 44 cases were due to be heard by Judge Ian Beresford yesterday. Despite his recent threat to strike out many of them before they came to court, 37 were settled by the banks who handed out more than £50,000. Among the institutions that backed down at the last minute was Lloyds TSB, which in May became the first bank to successfully oppose a customer's claim.

In the end just seven cases were heard by the judge. Three were with Alliance & Leicester, which failed to appear, and the rest were with Yorkshire/Clydesdale bank. All seven claimants were represented by a QC appointed by the joint MoneySavingExpert.com and Consumer Action Group fighting fund.

While the lawyers for the Yorkshire argued the 'strike out' order should stand, the judge agreed the cases should be heard. He also agreed to accept new 'particulars of claims', drafted by the legal team. The banks have 28 days from 11 July to put in a written defence.

Most importantly, the judge ordered the banks to make a full disclosure on charges by the 28 September. This means they need to reveal the cost calculations on which penalty charges are based.

Just days ago, the banks paid out to more than 200 customers whose cases were due to be heard at a court in Leeds. The judge there had indicated that he wanted to use some of the actions as a test case, but the banks chose not to defend their fees.

Speaking after yesterday's hearing in Hull, Marc Gander, co-founder of the Consumer Action group said:

'We're delighted it appears the Yorkshire Bank has decided finally to stand firm and allow a test case to go to court.

'It appears we're getting nearer to a real court decision being made and I wholeheartedly believe that when that happens millions of people across the country will benefit, because everyone should be able to reclaim charges.'

Martin Lewis, creator of MoneySavingExpert.com said Yorkshire/Clydesdale bank now faced a simple choice - to break ranks with other banks and be the first to reveal its costs, or face an embarrassing climbdown and pay up. 'Either way, it's great news for bank charges reclaiming,' he said.

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A court showdown over bank charges could take place today as campaigners fight to prevent a judge striking out claims relating to 'unfair' fees.

The case of more than 40 customers was originally slated to be heard at Hull County Court in relation to unauthorised overdraft charges levied by current account providers.

But it is believed that many of these cases may have already been settled by banks despite the presiding judge indicating that he intends to throw the claims out, and more could follow on the day itself.

Judge Ian Besford said last month that the customers' cases disclosed 'no reasonable prospect of success' in the light of a recent case in Birmingham in which fees were ruled to be a legitimate part of the banking service.

Campaigners at the Consumer Action Group and the website Moneysavingexpert.com responded by offering to fund legal representation on behalf of the claimants, turning the case into one of the most significant court battles over bank fees to date.

The move could see lawyers from the banks having to defend fees that can be high as £39 for missing a single payment or going over an agreed overdraft.

But with current account providers keen to avoid court scrutiny, it is believed many of the original 44 claimants in Hull have already been paid off.

It could prove a disappointment to those within the legal community who have sought a ruling over the matter in the face of thousands of similar claims around the country.

Last week a High Court judge in Leeds attempted to find test cases to go to trial in a bid to obtain an 'authoritative' decision over the legality of fees.

But his attempt was thwarted at the eleventh hour, after banks paid off dozens of claimants. Confronted with no suitable claims to move forward with, Judge Grenfell said that it indicated there was 'no mood' among banks for 'a definitive ruling on matters of fact and law'.

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Thousands of new graduates will be hit by bank charges this summer when HSBC ends their free overdraft facility.

The major banks have traditionally offered students free overdrafts while they are at university, with a gradual reduction to zero in the three years after they leave.

But yesterday HSBC announced an end to the postgraduate element of the perk. The bank will introduce an interest charge of nearly 10% on the overdrafts of customers who leave university this year.

They will be offered the chance to keep the previous deal of a three-year tapering facility, but only by opening a Graduate Plus account at a cost of £9.95 a month.

None of the bank's competitors said they would be following suit this year, but nor did they guarantee they would not do so in the future.

HSBC said it was a way of helping students realise that borrowing costs money.

But the Students' Union accused them of 'seeking to extract greater profits from hard-up graduates'.

The bank currently offers students a free overdraft of £1,000 in their first year at university, £1,250 in the second, and £1,500 in the third. It remains at £1,500 in their first year after university, and falls to £1,000 in the second, and £500 in the third.

But those leaving this year will be charged 9.9% on any overdraft from August. For a student on the maximum overdraft of £1,500, this will cost £12 a month, though the 9.9% still compares favourably to the 18.6% charged on overdrafts from the bank's standard current account.

Students who graduated before this summer will not be affected.

HSBC spokesman Karen Garner said: 'The new service is put together to create a more level playing field. We wanted customers to distinguish between being a student and graduate, because as the latter you are in a position to earn money.

'It softens the blow of realising the costs associated with borrowing, though we appreciate there is a risk that some students won't bank with us anymore.'

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Bank charges claimants have been warned to ensure their cases are watertight after signs that judges are becoming exasperated with slapdash claims and banks refusal to turn up to court.

With the county court system under severe strain from the thousands of pending unfair bank charges cases, some district judges have been threatening to strike out claims from those who fail to supply the correct paperwork.

The hardening of judges' attitudes comes after months of claimants winning by default when banks fail to turn up to court and represents an effort to crackdown on frivolous cases in which claimants have failed to supply necessary paperwork or adequately state their case.

Senior judges have also warned that unless a test case is heard with banks fighting a case all the way through to the High Court or Court of Appeal, the current confusing situation will continue.

Campaigners are urging those who have been the subject of unfair bank charges to persevere with their claims for the cash to be returned, saying that as long as all paperwork is on order claims are more than likely to be successful.

The encouragement follows the news that a judge in Hull is threatening to strike out the claims of 20 bank customers, citing a recent case in Birmingham where Kevin Berwick lost his case against Lloyds TSB.

District judge Ian Besford wrote to the claimants, whose cases are due to be heard in July 4, saying they were unlikely to succeed because of the Berwick case.

His threat comes despite the fact that Mr Berwick's case does not set a precedent as the verdict was given in a County Court.

Senior London judge Stephen Gerlis, who speaks for the capital's district judges, said that the lack of a precedent setting case meant that charges claimants were facing a lottery, with the success of their case hinging on individual judges' sentiment.

Campaigners argue that only two known bank victories, the Berwick case and a similar instance in Lancaster where Lloyds won a case against Julian Rudd, have come as a failure to supply comprehensive paperwork and people should continue to fight for their money back.

Commenting on the Birmingham case, Mark Gander of Consumer Action Group, said: 'The Berwick case is highly specific to its own facts and the way it was presented - with no general principle laid down.'

With the small claims system buckling under the weight of hundreds of thousands of bank charges claims, experts say those hoping to win money back should follow the steps carefully and supply all necessary documents and information.

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Borrowers hit with exorbitant fees for going into arrears on their mortgage should seek compensation in the same way that thousands of people hit with unfair bank charges already have.

The Financial Ombudsman Service (FOS), which handles complaints against banks, says you should complain to your lender if you think the charges are too high and do not reflect the administration cost. If the lender refuses to refund you, then complain to the ombudsman.

The Office of Fair Trading says the principle that fees should mirror the cost to banks, as applied to current account and credit card penalty charges, also applies to mortgage arrears.

The UK's largest lender, Halifax, charges £35 for non-payment, £100 when debt collectors are sent out and £125 for a solicitor's letter. Lloyds TSB charges £10 for a first arrears letter, £30 for a second, £35 when a payment plan has been broken, £94 for a visit from debt collectors and £200 once solicitors become involved.

This dwarfs controversial bank charges which can be up to £39 for a bounced check or unpaid direct debit. The FOS says the number of complaints have grown during the past few months, which could signal the start of a consumer backlash.

It has identified more than 50 complaints in the first three months of the year. It cannot confirm the total number, however, because complaints are often bundled with other grievances - so the true total may be much higher. Encouragingly, no complaint received has been contested, with providers usually making a settlement.

The problem is that the numbers hit with mortgage penalties could increase. There have been four Bank of England base rate rises over the past ten months, the effects of which experts say can take months to filter through. Home repossessions increased by 65% last year, as many more borrowers fell into arrears.

Rob Clifford, head of broker Mortgageforce, says: 'It is a contentious issue when lenders add something to their costs for someone in arrears.'

Lenders' behaviour is currently the subject of a probe by City watchdog the Financial Services Authority into whether it treats those in arrears fairly.

Halifax urges anyone struggling to pay their lender to organise an alternative repayment plan. It won't charge you if you tell it your troubles and stick to the plan.

Mortgage lenders are hardly short of money. They witnessed a record year in 2006 when they lent £345billion - 20% more than the previous year.

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High-profile court cases are putting off some customers from reclaiming their bank charges.

But there is no need to take your case to court - you can simply complain to the Financial Ombudsman Service.
Not only is the service free, it is less complicated. And if you don't agree with the ombudsman's decision, you can still take your case to court.

But you cannot do it the other way round. Once a judge has made a ruling, you can no longer appeal to the ombudsman.

Earlier this month, a district judge in Birmingham found in favour of Lloyds TSB when customer Kevin Berwick tried to claim a refund of almost £2,000 in charges.

Some banks have attempted to use this decision to dissuade customers from complaining, but since it was a county court judgment it does not set a legal precedent.

However, Financial Ombudsman spokesman David Cresswell says: 'We are seeing letters from banks suggesting the Birmingham case is definitive. This is usually happening at local branch level. Often when we raise it at a senior level, head office agrees that the letters are wrong and stop any more going out.'

So far every bank charges case that has been taken to the ombudsman has resulted in the bank paying up before it has reached adjudication.

Thanks to our Fair Play On Charges campaign, which started in 2005, millions are demanding that charges on their current accounts, which can be as high as £39 a time, be paid back.

The ombudsman is receiving 1,000 complaints about bank charges a week - double the number they were getting until March.

However, you must complain in the first instance to the bank or building society before taking your case to the ombudsman. The amount of detailed evidence you need to gather to take your complaint to the ombudsman is less than that needed for a court case.

It's best if you have a list of charges, but you can simply tell the ombudsman that you believe you should be reimbursed for charges made by the bank between specified dates. 'That is enough for a valid complaint,' says Mr Cresswell. 'You don't have to quantify the loss specifically.

'We will ask the bank for the figures and data to support it, though most complainants do supply a list of the charges.'

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Banks are resorting to bullying tactics over charges - and the worst offenders risk being fined by the City watchdog, the Financial Services Authority, for the way they handle these cases.

Millions of customers have demanded their charges be returned on the back of our Fair Play on Charges campaign. You can request repayment of the last six years' worth of charges for unauthorised borrowing - such as those implemented for bounced direct debits.

But banks are not paying up willingly. Some of the ploys used by the banks to put off customers from reclaiming all their charges include: using spurious legal language; saying that the Ombudsman cannot look at their case; threatening that if the customer pursues their claim then they could end up paying the bank's ' considerable' legal costs; and claiming that there have been High Court judgments which have found against the customers.

All these assertions are incorrect. The Ombudsman can deal with cases. There has never been a bank charges case that has made it as far as a High Court decision, so there is no legal precedent. County court cases - such as the one reported today where the claimant failed to get Lloyds TSB to refund his charges - don't set a precedent.

Also there is no reason to assume that if a case got to court the costs would be huge and awarded against the complainant.

Customers are still being threatened that if they pursue a complaint, their account will be closed. The Financial Ombudsman Service has made a ruling on a case of this nature and said that banks are not allowed to do this.

Banks are also resorting to horsetrading over how much they will pay out. A first request for a refund will be rebuffed. A second request leads the bank to offer half the charges. On the third attempt, the bank will offer three-quarters.

If the customer isn't worn down and takes their case to the Ombudsman then the bank pays up in full.

So far, the Financial Ombudsman Service has not had to make an adjudication on a single case. Every time a case arrives at the Ombudsman, the bank pays up.

Whenever the banks make a payout, they say it is a 'goodwill' gesture. If a case actually did make it as far as an Ombudsman adjudication, then everything would become more formalised.

Banks would have to follow principles laid out by the Ombudsman - and they could no longer get away with making a series of offers.

The Chief Financial Ombudsman, Walter Merricks, has warned banks he is watching the way they deal with charge complaints. In a speech, Mr Merricks said: 'We have learned that some firms, when faced with a complaint, first respond by saying the charges are justified.

'If the customer presses the point and threatens to refer the matter to us, they are offered a write-off of half the charges.

'If the customer issues court proceedings, or actually refers the matter to us, the whole of the charges are written off. I'll just repeat what the rule says: handle complaints consistently and remedy recurring problems.'

The Ombudsman has referred some banks to City watchdog the Financial Services Authority (FSA) over the way they are handling bankcharge disputes.

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A bank is being forced to pay full costs to a customer who took it to court over unfair charges. It is believed to be one of the first times a small claims court judge has told a bank to refund not just the unfair charges, the cost of bringing the case to court, but all the associated costs in preparing the case.

Thousands of customers have already filed complaints about their banks for the high fees they take for simple mistakes such as going overdrawn without permission. More than £10m is believed to have been returned to customers already.

Small claims courts are bracing themselves for a deluge of cases. Despite banks filing defences, not one has ever gone to court.

Judges are beginning to see that banks are just using the courts as a way of threatening customers and have no intentions of actually representing themselves. They are unhappy about the courts' time being wasted, and the tide is beginning to turn even further against the banks.

And customers are increasingly being treated more sympathetically. It can take many hours to compile a case against your bank and postage and telephone costs soon mount up.

By law you can charge £9.25 an hour for the time you spend preparing your case. When a bank loses a case, it automatically has to pay the fixed costs involved with the case - this would be £80 if the claim was for a sum between £500 and £1,000 - a typical bank charge refund.

Gary Lloyd successfully took on Lloyds TSB on behalf of his mother Vivien who was charged £655 in charges by the bank. Gary, from Bristol, says: 'We sent all the standard letters to the bank, and it stalled us every step of the way.

'It was a long and time-consuming process, and Lloyds settled out of court just ten days before the hearing. It had no intention of turning up at court.

'But I pursued the bank for all the costs we incurred and the judge agreed with me. It's important never to give up when the bank keeps on putting hurdles up.' Vivien, 54, adds: 'It was incredibly stressful, and I didn't know until the last minute whether I would actually have to go to court.'

Gary and Vivien Lloyd contacted the Consumer Action Group, which now has a template letter for people to use when claiming these costs. It has a database of all the hundreds of cases where banks failed to appear at court, proving they had no intention of defending the case but were simply stalling customers.

Marc Gander, co-founder of the action group, says: 'This is a massive victory and shows the way the courts are now treating these cases. It's not normal for them to award additional costs. Make sure if you are making a complaint you keep a detailed record of the time you spend preparing your case and the other costs involved.'

The Lloyds got back £85.41 which included the five hours they took to compile their case. If you multiplied this by about 110,000, the number of people who have already made uncontested claims, it totals more than £9m.

A spokesman for Lloyds TSB says: 'We are surprised by this judgment as we firmly believe we have the right to lodge a defence in any legal action brought against us.' Once you have written to your bank asking for charges to be refunded and threatening to take it to the small claims court, it normally says it will defend its case. Banks tend to use stalling tactics by telling the courts they are not available on certain dates.

By the time the case does come to court most banks have settled out of court or fail to turn up so you win by default. Some banks simply dump a 'goodwill gesture' in your current account without any explanation. If this doesn't cover your bank charges' claim, then pursue them through the courts.

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