What is this about?
At some point in their life, most people have incurred bank penalty charges. These are levied when a customer breaches the terms and conditions of their bank account, credit card or other financial products. Bank charges can be high, with a £35 penalty for breaking an overdraft limit fairly standard.
But in the last couple of years consumers, regulators and opinion formers such as Martin Lewis have been challenging this position. They contend that these bank penalty charges are significantly higher than the banks have a legal mandate to impose. Customers have challenged the banks through the small claims court, with one customer winning back £17,500 and another sending in the bailiffs to his local branch after it failed to act on a court order to pay up.
But at the same time banks are fighting back, and some bank charge claimants have run into unexpected consequences. At the other end of the scale customers who have not suffered from penalty charges have expressed concern that they will be unfairly penalised as banks impose charges elsewhere and even consider putting an end to free banking.
TheRateTart Guide to Reclaiming Bank Charges provides a detailed summary of this hot topic and provides a tool-box to help you on the road to success should you decide to make a claim. Good hunting.
What is the legal position?
According to the law any charges levied must be proportional to the cost incurred by the bank. In other words the banks are entitled to get back the costs they have incurred in dealing with the breach, but they are not entitled to impose a penalty or tariff on the customer for making the breach.
The debate basically revolves around 'how much does it cost to deal with a breach and do the charges reflect that'. Only the banks know the real answer and they aren't telling. But given that 'dealing with a breach' basically involves an automated computer process sending the customer a standard letter, £35 instinctively feels a bit steep. In fact a recent report by BBC2's The Money Programme, got a group of former senior bank staff together and they estimated the real cost, even being generous to be only somewhere between £2.50 and £4.50.
Whilst this may all seem fairly cut and dried in favour of the consumer, it's impossible to say definitively that bank charges of £30 - £35 are illegal. This is because banks have so far tended to settle out of court to avoid just such a legal precedent being set. That said, you have to believe that if the banks truly believed they had a strong case they would go to court. It's not as if they can't afford the lawyers, and a judgement on penalty charges in their favour could stem the flood of claims before it turns into a tidal wave.
How do I know if / how much I have been over-charged?
Customers are entitled to claim for bank charges going back as far as six years. But many customers will not have retained records going back that far. Don't worry if you are one of them - banks are legally obliged to provide you with this information, but they do have the right to charge you £10 for it.
You can download a template letter for requesting details of bank charges here.
You can find the address for this at each of the major banks by clicking here.
What are the chances of success?
There are no guarantees that bank charges paid will be refunded, and you will have to put in effort. But from the evidence of dedicated sites such as the Consumer Action Group success appears to be more common than failure. Don't be complacent though. There is no legal precedent, so do your preparation and be serious in case you get in a fight. Even the recent successes by Lloyds TSB in having claims rejected do not set a legal precedent as the rulings were made in district courts not the high court. The lesson here for prospective claimants is that if you go ahead, then be serious and prepare thoroughly. There really is no such thing as a free lunch.
What are the risks of reclaiming?
Some customers who have successfully reclaimed bank charges have subsequently had their current accounts closed by the bank. This could be against the banking code, and indeed the Financial Ombudsman has recently ruled against a bank for doing this. We go into how to avoid being stuck without a current in the next section.
Chances are if you have been regularly overdrawn or late in making credit card payments, then your credit rating has been affected. But don't let this stop you from reclaiming bank charges. Banks are not allowed to penalise you for a successful claim on your credit rating. However you may find it difficult to get accepted for products from that bank in the future if they mark you as an 'undesirable' customer on their internal systems.
If you want to see your credit rating, click the link below to get a free 30 day trial of the Experian credit check service.
Credit Expert From Experian.
How do I reclaim bank charges?
Use the information, resources and links in this guide and follow the 6 step process and letter templates below;
1. Set up a reserve bank account
To avoid being left hanging should your bank close your current account, set up a new current account as a safety net before you start your attempt to reclaim bank charges. To check out a range of current accounts click here.
If your bank is ultimately closed it is worth making an official complaint to the Financial Ombudsman and you may be due even more compensation.
2. Identify all the charges you can claim for.
Document all the amounts you’ve been charged by each bank or credit card provider. Don't forget charges from closed accounts, over the last six years (this is the legal limit for claims). Do not include normal account fees, only penalty charges.
If you are unsure how to get this information see the section in this guide 'How do I know if/how much I have been over-charged'.
The bank must respond within 40 days. If they do not, follow up by phone and then report the breach to the Information Commissioner.
If you won via the courts, you would be entitled to add 8% interest (not compounded) on top from the date you were ‘first deprived’ of the money (i.e. the date of each charge). Although you are not legally entitled to the interest, including it in the initial claim can give you some wiggle room for negotiation later on in the process. Of course there is a risk that asking for too much makes them less likely to settle too. Ultimately it is up to the individual to decide what tactics to adopt.
3. Write to the banks and credit card providers.
Next write to the bank or credit card provider stating your belief that all the charges were disproportionate and you want the money back. Include an itemised list of the charges so it is 100% clear what the scope of your claim is.
Write to the bank requesting they repay you the charges documented. You can download this template to help.
One of the following responses is likely;
In the letters, set out a timetable and stick to it. Don't allow the bank to dictate or stall proceedings.
4. 'I'll see you in court'
If you were not satisfied with the outcome of Step 3, inform the bank in writing that you’ll be taking court action if it doesn’t settle. Include a strict limit of the time you give it to respond. You can skip this step, but if it works you can avoid going through the court process.
If you want a speedy settlement, one tactic is to offer the bank the option of settling for a lower amount if it pays out now. How much lower depends on you, but 25% less is a good rough yard stick. There’s no need to do this, it’s your choice, though if you choose to the letter here is drafted to help. Do note the phrase ‘without prejudice’. It means that the offer isn’t binding or admissible in any further legal process.
Likely outcomes are still similar to Step 3, but with a better chance of a good settlement.
5. Go to court
Although this may seem like a simple online process, don't get complacent. In most cases the banks do not challenge the claim. Nevertheless, we are talking about taking a high street bank to court. Enjoy!
In a standard court, the losing party may be asked to pay the legal costs of the winners. Under the ‘small claims’ system costs are rarely awarded, making it a much less risky bet.
Small claims in England and Wales are cases under £5,000, before any statutory interest is added. To keep claims below, either by making separate claims for each different account, or if you're slightly above the limit maybe reduce the claim to £5,000 to minimise the risk. You can do this even if earlier letters asked for more.
Yet even if your claim is much bigger for just one account, and you're not eligible for the small claims system, don't let this unduly put you off.
In Scotland the maximum claim is £750 and you may only reclaim 5 years' charges, in Northern Ireland the maximum claim is £2,000. This article is written based on the process for England and Wales, so for more details see Northern Ireland Courts and Scottish Sheriff Small Claims.
Use the Moneyclaim website in England and Wales (there's also the Northern Ireland Courts online) which can be used for starting most county court money claims, just go there and fill in the form.
This document should help you complete the claim form.
There’s a fee of between £30 and £120, depending on the size of your claim, which can be paid by a credit or debit card; though it’s refunded if you win. If you don’t have plastic to pay on, get the paperwork to start the claim from your local county court and pay there; it’s the same price. This may be waived if you’re on benefits.
Once the case is started the bank must get in a defence or at least acknowledge they’ve had the paperwork within 14 days. If they fail to do this you can ask for a judgment against the bank for the full amount of the claim without any hearing (see step by step guide below). By using the online process your request is likely to be actioned much, much faster than by your local county court.
After you’ve submitted a Moneyclaim, what happens next depends on the Bank’s reaction. It takes five days for the claim to be ‘serviced’ and all deadline dates start from that point.
For the sake of expediency the bank may settle in full as a ‘goodwill gesture’, including interest and court fees; though it almost certainly won’t admit it ever did anything wrong. This is most common for smaller claims.
Often the bank simply doesn’t acknowledge the claim and this means you automatically win by default 14 days after the claim is served (which takes 5 days). At that point, you must request ‘judgment by default’, this can be done online, and you should do it as soon as possible after the 14 days ends.
Banks have 14 days to acknowledge a claim after it's served, if that’s done they have a further 14 days to respond and enter a defence. Commonly they do an acknowledgement, but no defence is entered. Again this means you win, though this time after 28 days. At that point, immediately request a ‘judgment by default’, this can be done online.
If the bank does enter a defence, don’t panic. It is usually a way to try and make you settle, or argue that you've asked for too much.
At this point you’re now in the Court process. There’s a straightforward form called the Court Allocation Questionnaire which you need to fill out and return to Court.
The next stage should be a Small Claims hearing date, yet this virtually never happens, as the banks tend to offer a settlement at this stage. If you feel you need help at this stage, use the free resources available via the 'External Links' section of this guide.
6. Send in the bailiffs
Unfortunately the banks don’t always pay up automatically even if they’ve lost. This is actually great new, because now you’ve a right to send the bailiffs in to claim the money; a number of people have exercised this option, and again it’s easy to do via the Moneyclaim site. If you go down this route don't forget to call your local news outlets to let them know. We're sure they'd love to send a photographer or camera crew to cover the happy day.
Can I pay someone to do this for me?
As the movement to reclaim bank charges has grown, many law firms have seen an opportunity to make money. Whilst this may appear tempting, there are plenty of reasons not to bother;
If you decide to go ahead anyway, then ensure you don’t pay any fees upfront, or if you lose, and ensure you fully understand the charging structure.
Where is this all likely to lead?
The truthful answer is no-one knows. There has already been some evidence of banks starting to fight back. In late 2006 First Direct started to levy a £10 monthly fee on customers who paid in less than £1500 to their current account. And in February 2007 Lloyds TSB introduced an annual fee for low usage credit card customers.
So, is the movement to reclaim bank charges rewarding feckless customers, whilst punishing those who run their accounts efficiently as the banks are forced to raise revenue elsewhere? Well, not really.
The Big 4 High Street banks each make multi billion dollar profits yearly, and have a duty to their shareholders to do just that. But are they really 'forced' to levy these extra charges...or is this just an easier option than coming up with more new and innovative products that people actually want to buy?
As consumers we have choice. If you think a new charge is unfair, then move your business elsewhere. Comparison sites like TheRateTart make it easy to compare the market and find a deal that may well be better than the one you were on in the first place. If you can't be bothered to switch, then don't be surprised if the banks treat you as an easy target.
Affluent customers are still unlikely to be targeted as the banks are desperate to retain their business. Note the First Direct example quoted above is aimed at customers with a fairly low monthly income. HSBC even decided its branch at Canford Cliffs, Dorset, can only be used by customers who have savings of at least £50,000, a £200,000 mortgage or a £100,000 mortgage plus a £75,000 salary. Everyone else can use the cashpoint outside or pay £19.95 a month to become a member. Is this a custom on the English Riviera that only 'the world's local bank' understands?
So I don't need to worry about breaching my terms and conditions any-more?
This is absolutely not the case. Just because the tide is turning on bank charges, there's no excuse for being financially irresponsible. If you consistently mis-use your current account or credit card this will have a negative impact on your credit rating. If you have a poor credit rating it will be difficult to get accepted for a mortgage, credit card, loan or other financial product.
And even though banks are unlikely to be able to charge £30 for an un-authorised overdraft much longer, they will still be allowed to charge something. In April ‘06, the Office of Fair Trading opined that credit card charges were too high and should be reduced to £12, which most plastic providers have since done. But do you really want to pay an extra £12 just because you didn't get around to paying your bill.
At some point in their life, most people have incurred bank penalty charges. These are levied when a customer breaches the terms and conditions of their bank account, credit card or other financial products. Bank charges can be high, with a £35 penalty for breaking an overdraft limit fairly standard.
But in the last couple of years consumers, regulators and opinion formers such as Martin Lewis have been challenging this position. They contend that these bank penalty charges are significantly higher than the banks have a legal mandate to impose. Customers have challenged the banks through the small claims court, with one customer winning back £17,500 and another sending in the bailiffs to his local branch after it failed to act on a court order to pay up.
But at the same time banks are fighting back, and some bank charge claimants have run into unexpected consequences. At the other end of the scale customers who have not suffered from penalty charges have expressed concern that they will be unfairly penalised as banks impose charges elsewhere and even consider putting an end to free banking.
TheRateTart Guide to Reclaiming Bank Charges provides a detailed summary of this hot topic and provides a tool-box to help you on the road to success should you decide to make a claim. Good hunting.
What is the legal position?
According to the law any charges levied must be proportional to the cost incurred by the bank. In other words the banks are entitled to get back the costs they have incurred in dealing with the breach, but they are not entitled to impose a penalty or tariff on the customer for making the breach.
The debate basically revolves around 'how much does it cost to deal with a breach and do the charges reflect that'. Only the banks know the real answer and they aren't telling. But given that 'dealing with a breach' basically involves an automated computer process sending the customer a standard letter, £35 instinctively feels a bit steep. In fact a recent report by BBC2's The Money Programme, got a group of former senior bank staff together and they estimated the real cost, even being generous to be only somewhere between £2.50 and £4.50.
Whilst this may all seem fairly cut and dried in favour of the consumer, it's impossible to say definitively that bank charges of £30 - £35 are illegal. This is because banks have so far tended to settle out of court to avoid just such a legal precedent being set. That said, you have to believe that if the banks truly believed they had a strong case they would go to court. It's not as if they can't afford the lawyers, and a judgement on penalty charges in their favour could stem the flood of claims before it turns into a tidal wave.
How do I know if / how much I have been over-charged?
Customers are entitled to claim for bank charges going back as far as six years. But many customers will not have retained records going back that far. Don't worry if you are one of them - banks are legally obliged to provide you with this information, but they do have the right to charge you £10 for it.
You can download a template letter for requesting details of bank charges here.
You can find the address for this at each of the major banks by clicking here.
What are the chances of success?
There are no guarantees that bank charges paid will be refunded, and you will have to put in effort. But from the evidence of dedicated sites such as the Consumer Action Group success appears to be more common than failure. Don't be complacent though. There is no legal precedent, so do your preparation and be serious in case you get in a fight. Even the recent successes by Lloyds TSB in having claims rejected do not set a legal precedent as the rulings were made in district courts not the high court. The lesson here for prospective claimants is that if you go ahead, then be serious and prepare thoroughly. There really is no such thing as a free lunch.
What are the risks of reclaiming?
Some customers who have successfully reclaimed bank charges have subsequently had their current accounts closed by the bank. This could be against the banking code, and indeed the Financial Ombudsman has recently ruled against a bank for doing this. We go into how to avoid being stuck without a current in the next section.
Chances are if you have been regularly overdrawn or late in making credit card payments, then your credit rating has been affected. But don't let this stop you from reclaiming bank charges. Banks are not allowed to penalise you for a successful claim on your credit rating. However you may find it difficult to get accepted for products from that bank in the future if they mark you as an 'undesirable' customer on their internal systems.
If you want to see your credit rating, click the link below to get a free 30 day trial of the Experian credit check service.
Credit Expert From Experian.
How do I reclaim bank charges?
Use the information, resources and links in this guide and follow the 6 step process and letter templates below;
1. Set up a reserve bank account
To avoid being left hanging should your bank close your current account, set up a new current account as a safety net before you start your attempt to reclaim bank charges. To check out a range of current accounts click here.
If your bank is ultimately closed it is worth making an official complaint to the Financial Ombudsman and you may be due even more compensation.
2. Identify all the charges you can claim for.
Document all the amounts you’ve been charged by each bank or credit card provider. Don't forget charges from closed accounts, over the last six years (this is the legal limit for claims). Do not include normal account fees, only penalty charges.
If you are unsure how to get this information see the section in this guide 'How do I know if/how much I have been over-charged'.
The bank must respond within 40 days. If they do not, follow up by phone and then report the breach to the Information Commissioner.
If you won via the courts, you would be entitled to add 8% interest (not compounded) on top from the date you were ‘first deprived’ of the money (i.e. the date of each charge). Although you are not legally entitled to the interest, including it in the initial claim can give you some wiggle room for negotiation later on in the process. Of course there is a risk that asking for too much makes them less likely to settle too. Ultimately it is up to the individual to decide what tactics to adopt.
3. Write to the banks and credit card providers.
Next write to the bank or credit card provider stating your belief that all the charges were disproportionate and you want the money back. Include an itemised list of the charges so it is 100% clear what the scope of your claim is.
Write to the bank requesting they repay you the charges documented. You can download this template to help.
One of the following responses is likely;
- You get all your money back. The bank will simply writes and offer to pay you the money. This is a rare outcome.
- In most cases the bank sends a letter asserting that the charges are lawful. The may state they are prepared to fight your claim. They are basically trying to put you off continuing. Ignore this and move onto the next step in your master plan!
- You may be offered a sum that is less than the full amount claimed. If so, you need to decide whether to press for more or what's on offer.
In the letters, set out a timetable and stick to it. Don't allow the bank to dictate or stall proceedings.
4. 'I'll see you in court'
If you were not satisfied with the outcome of Step 3, inform the bank in writing that you’ll be taking court action if it doesn’t settle. Include a strict limit of the time you give it to respond. You can skip this step, but if it works you can avoid going through the court process.
If you want a speedy settlement, one tactic is to offer the bank the option of settling for a lower amount if it pays out now. How much lower depends on you, but 25% less is a good rough yard stick. There’s no need to do this, it’s your choice, though if you choose to the letter here is drafted to help. Do note the phrase ‘without prejudice’. It means that the offer isn’t binding or admissible in any further legal process.
Likely outcomes are still similar to Step 3, but with a better chance of a good settlement.
5. Go to court
Although this may seem like a simple online process, don't get complacent. In most cases the banks do not challenge the claim. Nevertheless, we are talking about taking a high street bank to court. Enjoy!
In a standard court, the losing party may be asked to pay the legal costs of the winners. Under the ‘small claims’ system costs are rarely awarded, making it a much less risky bet.
Small claims in England and Wales are cases under £5,000, before any statutory interest is added. To keep claims below, either by making separate claims for each different account, or if you're slightly above the limit maybe reduce the claim to £5,000 to minimise the risk. You can do this even if earlier letters asked for more.
Yet even if your claim is much bigger for just one account, and you're not eligible for the small claims system, don't let this unduly put you off.
In Scotland the maximum claim is £750 and you may only reclaim 5 years' charges, in Northern Ireland the maximum claim is £2,000. This article is written based on the process for England and Wales, so for more details see Northern Ireland Courts and Scottish Sheriff Small Claims.
Use the Moneyclaim website in England and Wales (there's also the Northern Ireland Courts online) which can be used for starting most county court money claims, just go there and fill in the form.
This document should help you complete the claim form.
There’s a fee of between £30 and £120, depending on the size of your claim, which can be paid by a credit or debit card; though it’s refunded if you win. If you don’t have plastic to pay on, get the paperwork to start the claim from your local county court and pay there; it’s the same price. This may be waived if you’re on benefits.
Once the case is started the bank must get in a defence or at least acknowledge they’ve had the paperwork within 14 days. If they fail to do this you can ask for a judgment against the bank for the full amount of the claim without any hearing (see step by step guide below). By using the online process your request is likely to be actioned much, much faster than by your local county court.
After you’ve submitted a Moneyclaim, what happens next depends on the Bank’s reaction. It takes five days for the claim to be ‘serviced’ and all deadline dates start from that point.
For the sake of expediency the bank may settle in full as a ‘goodwill gesture’, including interest and court fees; though it almost certainly won’t admit it ever did anything wrong. This is most common for smaller claims.
Often the bank simply doesn’t acknowledge the claim and this means you automatically win by default 14 days after the claim is served (which takes 5 days). At that point, you must request ‘judgment by default’, this can be done online, and you should do it as soon as possible after the 14 days ends.
Banks have 14 days to acknowledge a claim after it's served, if that’s done they have a further 14 days to respond and enter a defence. Commonly they do an acknowledgement, but no defence is entered. Again this means you win, though this time after 28 days. At that point, immediately request a ‘judgment by default’, this can be done online.
If the bank does enter a defence, don’t panic. It is usually a way to try and make you settle, or argue that you've asked for too much.
At this point you’re now in the Court process. There’s a straightforward form called the Court Allocation Questionnaire which you need to fill out and return to Court.
The next stage should be a Small Claims hearing date, yet this virtually never happens, as the banks tend to offer a settlement at this stage. If you feel you need help at this stage, use the free resources available via the 'External Links' section of this guide.
6. Send in the bailiffs
Unfortunately the banks don’t always pay up automatically even if they’ve lost. This is actually great new, because now you’ve a right to send the bailiffs in to claim the money; a number of people have exercised this option, and again it’s easy to do via the Moneyclaim site. If you go down this route don't forget to call your local news outlets to let them know. We're sure they'd love to send a photographer or camera crew to cover the happy day.
Can I pay someone to do this for me?
As the movement to reclaim bank charges has grown, many law firms have seen an opportunity to make money. Whilst this may appear tempting, there are plenty of reasons not to bother;
- Any award you get will be reduced by the law firms fee or the percentage they take of your pay out.
- There are plenty of free resources on the web to help you. See the external links section below. Some sites even offer a buddy system so claimants can help each other through the process.
- How do you know these firms have any real experience in this area? There is very little legal precedent and in reality they are probably getting a lot of their information from the free web-sites you could use yourself.
If you decide to go ahead anyway, then ensure you don’t pay any fees upfront, or if you lose, and ensure you fully understand the charging structure.
Where is this all likely to lead?
The truthful answer is no-one knows. There has already been some evidence of banks starting to fight back. In late 2006 First Direct started to levy a £10 monthly fee on customers who paid in less than £1500 to their current account. And in February 2007 Lloyds TSB introduced an annual fee for low usage credit card customers.
So, is the movement to reclaim bank charges rewarding feckless customers, whilst punishing those who run their accounts efficiently as the banks are forced to raise revenue elsewhere? Well, not really.
The Big 4 High Street banks each make multi billion dollar profits yearly, and have a duty to their shareholders to do just that. But are they really 'forced' to levy these extra charges...or is this just an easier option than coming up with more new and innovative products that people actually want to buy?
As consumers we have choice. If you think a new charge is unfair, then move your business elsewhere. Comparison sites like TheRateTart make it easy to compare the market and find a deal that may well be better than the one you were on in the first place. If you can't be bothered to switch, then don't be surprised if the banks treat you as an easy target.
Affluent customers are still unlikely to be targeted as the banks are desperate to retain their business. Note the First Direct example quoted above is aimed at customers with a fairly low monthly income. HSBC even decided its branch at Canford Cliffs, Dorset, can only be used by customers who have savings of at least £50,000, a £200,000 mortgage or a £100,000 mortgage plus a £75,000 salary. Everyone else can use the cashpoint outside or pay £19.95 a month to become a member. Is this a custom on the English Riviera that only 'the world's local bank' understands?
So I don't need to worry about breaching my terms and conditions any-more?
This is absolutely not the case. Just because the tide is turning on bank charges, there's no excuse for being financially irresponsible. If you consistently mis-use your current account or credit card this will have a negative impact on your credit rating. If you have a poor credit rating it will be difficult to get accepted for a mortgage, credit card, loan or other financial product.
And even though banks are unlikely to be able to charge £30 for an un-authorised overdraft much longer, they will still be allowed to charge something. In April ‘06, the Office of Fair Trading opined that credit card charges were too high and should be reduced to £12, which most plastic providers have since done. But do you really want to pay an extra £12 just because you didn't get around to paying your bill.
