Why are Bank Charges Unfair?
Last year the top High Street banks in the UK made an estimated £4.5 billion pounds in penalty charges, which are at best unfair, and at worst illegal!
When you go over your overdraft limit with your bank, you are breaking the terms and conditions of your contract with the bank, so they apply a penalty charge which is usually between £30 to £40.
However, under English law, penalties for breach of contract are not legally enforceable. The amount that legally can be charged must reflect the actual losses incurred as a result of the breach of contract. When you go overdrawn, do you think it costs the bank over £30? NO! It is only lawful for the bank to charge you the actual cost of recalling or cancelling a direct debit, or bouncing a cheque, but as these actions are performed automatically by the banks computers, the cost is negligible.
The bank commission of BBC's "The Money Programme", which included two professors of banking, and a former Natwest executive, estimated that the highest amount that the banks could justify charging to cover their costs was £2.50 - £4.50 (and that’s being generous!), much less than the banks are currently charging its customers!
Update: 4th April 2007 - A new report has come to light from a former Yorkshire Bank Employee, whos job was to work out the precise timings and costings to do with charges, has disclosed that no process actually costs the bank more than £2, and that included dealing with current account defaults!
For full details, see this report.
Consumers are protected by law from unfair bank charges in the "Unfair Terms in Consumer Contracts Regulation (1999)". These state that penalty charges are not permitted to be a profit making enterprise for any business, and if the penalty charge is higher than its administrative cost, the charge is illegal.
However, there is currently no official process covering the process of claiming back bank charges, as there has been no official court ruling as yet saying that the charges are illegal.
So why should the banks give me back my charges?
Currently, everyone who takes on the bank are "winning", i.e. getting their bank charges refunded by the banks before it goes to court, or if the case does come to court they offer no defence, and so you win by default.
The banks are doing everything can to avoid cases going to court, as an official ruling that the charges are illegal would make it clear that everyone would be entitled to their charges back. At the moment, although there are hundreds of thousands of people claiming back their charges, this is far better for the banks and less expensive for them, than everyone claiming back their charges. They also don't want to stand up in court and justify their charges, and state how much it actually costs them for various actions, as they want these kept secret for business purposes.
Although they are deliberately obstructive to people claiming their bank charges back, if you persist you will get your charges back in the end. Usually the banks back down, and rather than agreeing the charges are unfair, they offer to refund your charges but say that they are only giving them back because it’s less costly in terms of time and money than them having to go to court and defend themselves. So they don’t admit the charges are illegal, but you do get them back!
