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From The Times

April 25, 2008

Banks told to stop stalling and pay up after verdict on charges

David Budworth and Lauren Thompson

Banks have been accused of trying to block compensation claims from customers, after they refused to accept the findings of a High Court test case on penalty charges.

Consumer groups fear that the banks will appeal against yesterday’s ruling, which allows the Office of Fair Trading (OFT) to press ahead with an inquiry that will establish once and for all whether bank charges are unfair. An appeal would delay the cases of hundreds of thousands of customers who are trying to reclaim fees after going overdrawn or missing payments.

Phil Jones, of the consumer organisation Which?, said: “The banks should concede defeat, agree with the OFT what constitutes a fair unauthorised overdraft fee and refund their customers as soon as possible. If they drag out the case, customers will keep being charged and be powerless when they make a complaint.”

Adam Phillips, of the Financial Services Consumer Panel, said: “Consumers have been left in the lurch with complaints about bank charges for long enough. The banks should not seek to stretch out the arguments by going to appeal over this judgment.”

The banks have until May 22 to decide whether to appeal. As they struggle with their own financial problems — as evidenced by Royal Bank of Scotland’s announcement of a £12 billion rights issue to cover a potential £5.9 billion write-down on its assets — the banks are thought unlikely to accept a judgment that could lead to billions of pounds being reclaimed.

If the OFT concludes that the charges are unfair it could cap fees at a much lower rate than the £30 typically charged, costing the banks an estimated £10 billion more.

The banks have an incentive to draw out the process because the Financial Services Authority (FSA) is permitting them to put claims on hold until the judicial process is completed.

Tens of thousands more cases brought in the county courts or with the Financial Ombudsman Service have also been suspended, pending a final judgment.

The British Bankers’ Association said that it was too early to give a response to the judgment, but an industry insider said that there was likely to be an appeal “against some level of the judgment”.

Campaigners fear that the banks’ delaying tactics could spell disaster for some families. Households short of cash are more likely to run up bank charges and potentially have most to gain if the OFT investigation allows them to reclaim the fees.

National Debtline said that 52 per cent of the calls it had received over the past year were from people seeking advice on bank charges. Beccy Boden-Wilks, of the charity, said: “Most people who come to us for advice have incurred overdraft charges and we always advise them to claim back the last six years’ worth of fees from their banks. Many low-income earners are forced to occasionally dip into their unauthorised overdraft, but as the cost of fees mounts up it just compounds their debt problem.”

Penalty charges are incurred for unauthorised overdrafts, bounced cheques and clearing direct debits when there are insufficient funds in the account. In some cases, charges are levied for every day an account is overdrawn, while interest also builds up if customers do not address the debts.

If the banks do appeal, the case could drag on for years, although the FSA has the power to restart the claims process.

David Black, principal consultant of banking at the financial services analyst Defaqto, said: “An idea of how long this could take is given by the four years it took to conclude the legal dispute over whether overseas credit card transactions are covered by the protection of Section 75 of the Consumer Credit Act.”

Angela Knight, chief executive of the British Bankers’ Association, denied that the banks were putting profits before customers by appealing against the High Court judgment. She said: “This judgment, which contains important points for both the banks and the OFT to consider, marks the first stage in the test case process. Further court hearings will be required before the case is concluded.”

Called to account

£10 billion The cost to banks if they are forced to cut overdraft fees

1 million Number of people awaiting refunds on charges

£713 million The amount those 1 million could reclaim

£784 million The estimated cost of out-of-court settlements to customers who have reclaimed bank charges over the past two years

£111 The amount banks make every second from overdraft charges

Source: Times database

Paul Owen, a sales assistant from Manchester, is trying to claim £4,500 in bank charges from Barclays through the courts, but he is still waiting for a refund after his case was put on hold.

Mr Owen, 31, usually goes overdrawn by about £200 each month, and over the years the charges have added up.

In January 2007 he went on to the Moneysavingexpert website and downloaded a template letter to claim back his bank charges after reading about other customers who had successfully done the same.

When Barclays turned down his claim he was determined not to give up and decided to take his case to court. By the time his case was due to be heard, the courts had been told that they should put all cases on hold.

He said: “I’m really annoyed that I’m being forced to wait for a judgment. Until I get a refund of the charges I can’t deal with my debt problem.”

I started cashing my check and keeping my money in a cashier's check. I deposit just enough to cover my checks, keep some in cash and the rest is kept in a cashier's check. I don't let the bank hold onto my money and then let them charge me for being overdrawn.

Kerri, sacramento, USA

The best way to hurts banks is in their pockets.

Why not manage your finances better avoiding these charges incuured by EXCEEDING a limit

dec765, Watford,

How can we be stealing money from the banks when we go into overdraft? The banks have GIVEN us this money to oay the D/D or whatever. If I give you money, have you stolen it from me?
How can any overdraft be UNAUTHORISED? For us to have any overdraft, it has to be AUTHORISED from the bank!!!!!

Tony Murphy, Manchester,

All this in an enviroment where banks are supposed to treat customers fairly as required by their regulator - what a joke and what a waste of space the FSA is

Stephen

Stephen Millington, Halifax, U K

If you make CC payments online it comes out a bank account immediately but does not show on other account for 2-3 days, wheres the money? somebody is making interest on it. Cartel comes to mind! Most bills are paid by DD which gives banks the OK to pay out what they like so you go OD and get charged

sarah, kingston,

I made a mistake 3 weeks ago when paying my credit card to Bank of Scotland. I phoned them advised them that my payment would be late, they assured me that any charge would be refunded because of my previous good payment record and it was.
Try talking to your bank if you are in financial trouble.

Dave, Mold, Flintshire

Anyone worried about charges for going a few £ overdrawn should arrange an authorised overdraft and discipline themselves not to use it. Then if you do accidentally go overdrawn but stay within the limit, all you'll get charged is interest on the overdrawn amount.

Steve, London,

I ensure that my visa card is in credit always! I use them for convenience,which gives them a 5 percentage income from every purchase I make with a trader. Despite this a pound or so for interest on purchases is debited against my account monthly This is despite me being always up front. HELP!

Macdonald, celle, lower saxony

To those who canot restrain themselves from spending other people's money, remember that if the banks cannot make a profit from you then they will not want you as a customer. It will be interesting to see how you can survive without a bank account.

C Byrne, Pinner, UK

For those of you who seem the think going overdrawn by "only" £1.50 means you shouldn’t get charged, it is clear as mud in the T&C's of these accounts what happens when you spend money that YOU do not have. If you spend more then you earn what do you expect to happen? Smiles and handshakes?

Steve, Lancs, UK

Maybe the consumers should slap on late payment charges if they're stalling?

stephen hulton, eure, france

Tha Bank's behaviour over these charges is a disgrace and inevitably hits those that can least afford it. It is estimated that it costs the Bank £2 each time they have to cancel a DD, my Bank currently pass on a £38 charge! Come on OFT/Government/BBA - sort it out!

Robin, London,

Even though I registered my claim against the bank (Natwest)in September, and my claim is for 3 times as much as my overdraft, my bank defaulted my account last week - giving me bad credit for 6 years. This is because I refused to pay money in pending the outcome of the case.

Simon S, Banstead,

I do not think any reasonable person would disagree with being charged for bounced cheques, unauthorised overdrafts etc, the issue is that thousands of people are being ripped off on a daily basis by excessive charges for what is essentially an automated service.

Mark, High Wycombe, England

It's not at all about spending outside your limits. And then creaming some cash back.
The banks profit from poor customer service and problem resolution. It's an incredible business model that wouldn't stand up in any other industry.

Chris, Rhos on sea, UK

Great! Looks like I'm going to be forced to pay charges due to the stupidity of people failing to spend within their limits!

Once more, the "it's not my fault" culture rises to the surface!

A Thorn, London,

I think its time to go back to the days of being paid in cash for our efforts.The banks would soon change their tune.They are by any strech of the imagination,simply guilty of extortion.

Robert, Derby, Derbyshire

Seems plain English is needed - terms and conditions are not valid if "unreasonable" or if they break the law.

The ruling yesterday meant that the banks CAN charge but that those charges must be reasonable.

One other point. Overdrafts ar not free, there is a charge. it's called INTEREST.

Lance, Crawley, UK

All the posters on this site who are swimming in the same sea as the banks, need to realise that not everyone purposely goes overdrawn (see posting from Keith Nichol) or wants to be plunged into debt crisis.

A charge is acceptable yes, but not by means of daylight robbery. £111 per second? Hello?

Louise Hardy, Mirfield, West Yorkshire,

If people were stupid enough to run up unauthorised overdrafts in the face of clearly stated penalties why should the rest of us pay for their inability to manage their finances. The OFT and the courts are way off base in this matter.

mike gee, bournemouth, uk

This ruling and the recent Credit Crunch demonstrates that even the banks are vulnerable in getting into trouble with money, not just the ordinary consumer ! Who else but the OFT and the Courts can be a voice for the consumers against the giant Cartels of the Banks around the world ? Banks pay up !

dkp, London, UK

This story should make it clear that the litigation reported was only concerned with establishing whether the rules about unfair contract terms applied to banking contracts or not. The case therefore involved no consideration of whether or not the charges were unfair. This comes later.

John Scott, London,

Banks are cheats and robbers. They back dates the overdraft in your account when you were never in overdraft for any second, leaving evidence in their favour. Customers are left powerless in pursuiting justice.

Steve, Luton, UK

If you can't manage a bank account then you shouldn't have one. The banks should simply close the accounts of persistent (i.e. more than once every 5 years) offenders.
I have no sympathy whatsoever, penalties work in all other parts of life why not this. .

Eddie Reader, birmingham, england

If you are unhappy with the way in which your bank has treated you then why stay with them. There is a serious apathy for complaint and action in this country. Swich to another bank, the process is quite easy and the more people who switch, the more the banks will have to work to gain your custom

Christopher P, Manchester, UK

The issue is not about the banks' right to levy charges it is about the level of those charges. Legally they may only recover their actual administration costs. With transactions being fully computerised I have enormous difficulty in believing that £35 is the actual cost of administration.

George brink, Hinckley, Leics,

I have just been charged £115 by Lloyds TSB for being £1:37p overdrawn. I have never had an overdraft or been overdrawn in 7 years. They justified their charge on returning a direct debit of £2:37 by giving me an unauthorised overdraft I never asked for. Today I'm closing my account.

keith nichol, London, uk

The people who go into overdraught,it really means that they are stealing money from the bank. 99% of these know that they do not have sufficent funds in their account when they buy things.I personally feel they should pay for this credit.

stan white, leeds, england

"Mr Owen, 31, usually goes overdrawn by about £200 each month, and over the years the charges have added up."

So why didn't he spend £200 less each month? I have never paid a bank charge in my life - I don't spend money that doesn't belong to me. This ruling is unfair on responsible customers.

Erica Aarons, London, UK

Over the years, I think my bank made slight changes. Years ago, if I tried to take money out of a cash machine when none was available, the machine would refuse (likewise card purchases). Then one day they quietly started letting me have money over my limit (and wacking me with a heftty fee)

Pete, Falmouth,

What happened to "Everyone is innocent until they are proved guilty". Does the second half never apply? Surely appeals would be a less appealing option if the business had to pay out in the interim?

Peter Holland, Portsmouth, UK

The banks are holding on to our money without our permission and thus it seems only fair that as of today they should pay the same ridiculous arrangement fees and interest that they have illegally tried to charge us.

John Edmonds, London, UK

There has been over the last two days a hearing in the Appeal Court as to whether the Financial Ombudsman Service is obliged to obey the law of England; the decision may well allow the FOS to give compensation anyhow.

Joe Egerton, London,

The Banks will try and drag this out for as long as possible.

I understand these cases can be processed an alternate way via the loancheck methodology so at least the consumers are not left in limbo.

Mal Lee, Liverpool, uk

Agree wtih Joe Black and others. If you need to overdraw, speak to your bank. If you don't know the state of your account then perhaps you shouldn't have one.

What's wrong with banks making profits? As I understand it these profits are taxed and go to pay for Government spending,

Asmodeus, London,

Commenting on Joe: "Agree the terms" is valid only if one had a choice. If the terms are the only ones available because all the banks work the same way there is no agreement it is what is known as a Cartel. Charging 40 because there was no money in the account is ludicrous and a disgrace.

John Morgan, Old Stratford, United Kingdom

People act surprised about the charges. The banks make it very clear about the costs. Perhaps banks should refuse all payments as soon as people go 1 penny overdrawn. The customer should then book an appointment & agree a line of credit - charged accordingly. That way no complaining afterwards!

David Taylor, Aylesbury, UK

If you sign up for a bank account and later find out that it says in the small print (in ambiguous jargon terms) that the bank has the right to kill you if you go over your limit, then it would be illegal if they did. This is exactly the same.

Daniel, Cambridge,

The banks are not an authority that can hand out fines, they can mearly charge the cost of admin.

Daniel, Cambridge,

My bank. NatWest, made an error on my current account - I was obliged to notify them in writing twice (1st letter ignored) - I have now billed them for £76, demanding that this sum be credited to my account (2 x standard O/D charge) - it seem fair and reasonable - but I'm not holding my breath!!

Chris Dodsley, Nottingham,

Ludicrous. These people agree the terms, rack up charges and now want a refund for 6 years. Its an abuse.

Joe Black, Glasgow,