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Two new forces enter the bank charges fray

BACK in January, Your Money ran a piece about bank charges and how to reclaim them.
Since then, the campaign to stamp out excess bank charges has mushroomed. At one stage in February over 5,000 people a day were calling the financial ombudsman for advice.
As yet there has been no formal advice from the authorities to banks to trim their charges but, as anger grows, two powerful new forces have entered the fray on consumers' behalf.
The Office of Fair Trading (OFT) is due to issue a report shortly in which they are expected to say that bank charges are far too high. It's unclear what ceiling they will attempt to set although when you consider that the actual cost of a bounced cheque or a customer going beyond their overdraft limit is somewhere between £2.50 and £4.50, and charges can be as high as £35, there is some room to manoeuvre. In a situation where city bank Credit Suisse estimates banks make over £1.2bn from charges, few customers will shed tears, particularly when you consider that profits at high street banks have surged to £40 billion - an increase of 40%.
Any changes to charges will not happen retrospectively of course, and if you're still unhappy with the way the bank is responding to your complaints, then a phone call to the Office of the Financial Ombudsman might be in order. They have proved extremely helpful to many consumers not just in claiming back unfair charges, but also interest accrued on those charges
As the number of consumers protesting against these charges has grown, so have the banks' defences. In order to claim back charges, customers need a list of them and banks are allowed to charge up to £10 for six years' worth. However, although the maximum amount payable to obtain this list is covered under the Data Protection Act 1998, statements are not. And according to thisismoney.co.uk, banks have taken to offering customers their old statements instead of the charge list and charging £5 for each one. This can lead to a bill running into hundreds of pounds.
Other ways banks have started to fight back include threatening to close customers' accounts, or even switching accounts away from free banking to accounts which have standing charges even if you stay in credit. So before you embark on trying to reclaim your original charges, it might be worth opening an account elsewhere just in case the worst should happen.
And do check your bank statements for any evidence of new fees.
The OFT report comes hard on the heels of their success in limiting fees for late payment of credit card bills to £12 and is perhaps at last a sign that the financial regulators have teeth.
Away from bank charges, another regulator has been getting busy with mortgage exit fees.
Whether it's repaying a mortgage early or simply switching provider, mortgage companies are allowed to charge a fee for the privilege of you closing your account with them and moving it elsewhere.
Concern has been raised that exit fees or early redemption fees have been raised out of all proportion as lenders try to claw back money they lose when customers switch to another company.
While the practice of making these fees higher than those agreed in the original contract has yet to be tested legally, research from L&C Mortgages shows that the average exit fee has more than doubled from £115 in 2003 to £239 today (Tuesday, 20 March). In many cases, as the exit fee is not normally fixed at the time the mortgage offer is made, many lenders have taken advantage of this to hit borrowers with big increases that they can do nothing about. The fact that switching also triggers arrangement and administrative fees means that taking out a new deal now costs many borrowers more than £500.
Now the FSA has said that some fees must be cut and indicated that borrowers who were unfairly charged should be compensated. Most of the big banks are implicated as are many of the building societies. Any lenders that plan to continue charging high fees will have to justify their actions. And this new rule also applies to past customers, so those who have already paid the charge should be entitled to a refund. If you think you might be one of those entitled, you should contact the FSA

Victory for bank charge mum

A MUM has won a victory over one of Britain's biggest banks after she was hit with massive charges.
Helen Franks, 46, decided to get tough with the Royal Bank of Scotland when they penalised her for exceeding her overdraft limit by just over £27.
Over the following weeks she was charged a total of £321. By going through her bank statements for six years, Helen, of Prestwich, found she had been charged more than £900 interest.
She embarked on a four-month battle against the bank - which announced annual profits of £9.2bn earlier this month - and eventually took it to court to recover her funds.
Helen followed advice from Manchester finance expert Martin Lewis, who has led a crusade against bank charges, and challenged the bank claiming the charges were unlawful because they could not be justified by the costs incurred by the bank.
Bailiffs
Despite winning her case at Manchester County Court, the bank ignored the ruling. Ultimately she had to threaten it with a visit from the bailiffs before the bank caved in and repaid Helen the full amount of her claim.
Mum of three Helen, who works for a dental recruitment firm and has had an account with the Royal Bank of Scotland for 23 years, is now urging all bank customers to follow her example.
Her struggle began last October when she notified the bank she was going to exceed her overdraft limit by less than £30, but she was hit with charges anyway.
She said: "I went to my branch in Manchester on a number of occasions to explain how difficult the problem was for a single mother of three. I was met with no sympathy whatsoever. At times the bank's attitude appeared vindictive."
As the bank imposed a £38 charge for each transaction that went over her overdraft limit, she was driven further into the red and several payments - including her council tax - were refused.
Claim
Helen calculated that she was charged a total of £321 over three months as she struggled to get her account back on course. She also demanded the bank supply her with statements from the past six years and worked out she had been charged £925 in interest. Helen paid £120 to submit a claim to the county court.
"The court wrote several letters to the bank and they were ignored so I won the case because it was uncontested," she said.
The bank eventually sent her a cheque for the full amount of the claim, plus costs.
Helen said: "I have been appalled by the whole experience."
A spokesman for the Royal Bank of Scotland said: "The fees against Ms Franks's account were taken when she failed to ensure that sufficient funds were available to cover her transactions. All fees were refunded as a gesture of goodwill."
HAVE you succeeded in winning back excessive bank charges? Let us know!

Clock is ticking for bank charge claims

Time is ticking for people who want to reclaim bank charges, as the OFT is due to make an announcement about what it considers is a fair charge for dealing with current account defaults.

A spokesperson for the OFT told This is Money they still didn't know exactly when an announcement would be made, but it is likely to be made within the next month. The OFT's decision is likely to affect the amount that individuals and businesses can reclaim.
The OFT's announcement will detail the amount that it considers banks can reasonably charge customers to deal with unauthorised overdrafts, cancelled cheques, returned direct debits, and various other defaults.
The charges, which are currently as high as £39, have been deemed to be unlawful because banks are not allowed to profit from dealing with penalty charges. While banks say they stand by their charges, none of them have yet defended them in court for fear of having to justify them.
Instead, they are routinely refunding them in full, but that is very likely to change once the OFT states its opinion on what is a 'fair charge'. It is likely that customers will only be refunded their bank charges, minus the cost of what the OFT says is fair.
For instance, if the OFT says it is fair to charge £10 for going into unauthorised overdraft, and the customer has been charged £25, they might only get the difference of £15 returned to them.
So if customers want to have all their charges refunded, they need to make a claim now to ensure they receive the maximum possible refund.
The OFT announcement is likely to be the catalyst for other changes in the industry as well. This is Money believes it's very unlikely that the banks will simply accept the limits imposed by the OFT without seeking to claw back the losses. So it could also be the time when we see higher rates of interest on credit cards and overdrafts, and possibly the more widespread introduction of monthly fees on current accounts.
Some analysts believe this would be a fairer system, but the prospect has angered people who are sensible and responsible with running their current account and who never run up charges.

'Homeowners could avoid bank charges'

Homeowners could escape having to pay for their banking if the industry introduces charges for previously free services, according to a financial product research company.Defaqto says that offset and current account mortgages could help mortgagees avoid paying banking fees.This is because the products combine a homeowner loan with a bank account and possibly other financial service as well.In its report, Defaqto reveals that providers who do not impose charges will potentially be able to save customers around £120 per year. An assessment of the market reveals 36 providers involved in the offset and current account mortgage market offering a total of 198 products among them. Three providers (Clydesdale, NatWest and Yorkshire Bank). were found to be offering both offset and current account mortgages.David Black of Defaqto said of offset and current account mortgages: "They are now increasingly regarded as mainstream products and we believe that providers will start to target new markets such as buy-to-let investors or those with lumpy income streams.”The head of the British Bankers' Association, Angela Knight, caused controversy recently when she appeared on Radio 4's today programme.She said that the introduction of charges for previously free banking services was "an inevitable consequence" of regulatory action against penalty charges.

Do the banks have a guilty secret?

Transparency may be the fashionable buzzword of the age, but not if you are a bank dealing with thousands of demands to refund overdraft charges.

The Nationwide has been receiving 5,000 claims a week
In the past few weeks, hundreds of thousands of people have been downloading letters from websites such as those of the BBC, Which? and campaign groups, aimed at reclaiming excessive bank overdraft fees.
It has been said that up to two million of these letters have been printed off.
A lot of money is at stake.
Analysts at the bank Credit Suisse recently estimated that the UK's high street banks earn about £1.2bn a year between them by levying penalty charges on customers who go overdrawn without permission.

Commercial confidentiality
How many of these letters have actually been sent to the banks? And how much money have they paid out? We are not providing that data Barclays bank
The banks will not say yet. "We wouldn't like to divulge those sorts of numbers," said a spokeswoman for Barclays, citing "commercial confidentiality".
At Lloyds TSB, the response was very similar. "We wouldn't disclose that number," the spokeswoman said. Guess what the helpful man at the HSBC press office said?
"We are not providing that data. It is a competition issue and is confidential."
However, a hint came last month when Stuart Bernau, an executive director of the Nationwide, said his building society was being sent 5,000 complaints each week about overdraft fees.
"It is now considerably more at the banks," said a well-informed industry observer.
"It is also operationally a major headache," he added.
Refunds
There is no doubt that money has already been refunded.

Nearly £8.4m has been recovered so far by CAG members
Since this consumer revolt started about a year ago, the website of the Consumer Action Group (CAG) has been logging the repayments of members who tell it of their successful claims.
So far, nearly 6,000 people who have used the CAG web site have received almost £8.4m as a result of challenging their banks' overdraft penalties.
"We are getting a real upsurge in the use of the site," says Marc Gander of the CAG.
With newspapers and the likes of Which? whipping up a big campaign recently to encourage even more claimants, the figures are likely to become even larger, especially as the banks appear to have a policy of always caving in once the case goes to court.
"Loads of ambulance chasers are now springing up. The word is spreading like wildfire," said Mr Gander.
Enquiries
So how many claims are now in the pipeline?
It is not necessary for us to know the numbers of complaints
OFT spokesman
"We would love to know that, but nobody will tell us," said Helen Ainsworth of Which?
Rather surprisingly, the Office of Fair Trading has not asked, even though it is in the middle of an inquiry into the banks' overdraft fees.
Its report will be published in a month or two and may call for these fees to be slashed, just as it did last year with credit card default fees.
"They didn't ask the question," said an OFT spokesman of the inquiry team.
"It is not necessary for us to know the numbers of complaints.
"The OFT has identified a potential problem and that it is serious enough for us to look into - that is what we are doing at this stage," he said.
The Financial Services Authority has also just started a review of the general procedures banks have in place for dealing with complaints, to make sure they are fair, prompt and consistent.
But again, it appears that a straightforward question about how many complaints have been received concerning bank charges may not form part of such an inquiry.
Eventual disclosure
Even so, the true scale of these customer refunds will probably emerge in the next few months.
The number will probably shoot up if the OFT says the current fees for unauthorised overdrafts are too high, thus encouraging many more people to claim.
If that happens, the scale of the refunds could force the banks to disclose the sums involved to investors in their annual profits announcements.
"Much more than £10m for each institution is the order of magnitude at which they would think of disclosing," said one City banking analyst.
"I think this will turn into a bigger issue than it has become so far," he added.

Caught in the penalty area

A teenager has been sucked into a debt trap after falling foul of excessive bank charges and misleading information.

Clare Allen was 18 when she started getting into difficulty on her HSBC current account. Now 19 and with take-home pay of just £711 a month, she is facing a £6,000 debt.
Her mistake was to believe that a £50 overdraft limit on her account meant she couldn't go beyond this amount. That mistake led to her running up almost £800 in charges which plunged her into a sea of debt.
On her low wage, she often withdrew small amounts of just £10 or £20 to pay for lunches at work. Once overdrawn, each individual withdrawal incurred charges.
Last week, HSBC announced profits of £11.5bn for 2006 while former boss Sir John Bond walked away with a package worth £8.5m, around a thousand times Miss Allen's annual take-home pay.
Miss Allen, who works as a receptionist at a Southampton-based law firm, accidentally went overdrawn in April last year. She thought if she went more than £50 into the red her card would be declined - she was deceived by the words 'overdraft limit'. But this never happened and payments continued to go through.
Miss Allen assumed she had got her sums wrong and there was money in her account or that her salary had been paid in early. Before she knew it, she was more than £350 in debt.
She went to her HSBC branch because she wanted to tackle the problem and came out with a £2,000 loan. Miss Allen says she asked her bank to remove the overdraft altogether so she could not get into further trouble. Despite this, she went overdrawn again and was hit with more charges.
Miss Allen paid a £25 penalty every time she went over her formal overdraft. She was also charged £25 for bounced direct debits and payments of more than £25 in value. (Items under £25 attract a £10 fee.)
In June 2006, she ended up with another £2,000 loan. But the loans would just pay off the overdraft with a little left over - before the debts started racking up again. She then consolidated all the loans into one £6,000 loan in October which will cost her £142 a month over five years.
Miss Allen says: 'I'm a teenager with little money coming in and I hate this debt hanging over my head. I did ask HSBC to get rid of the overdraft facility but it said I couldn't do this. Next thing I know I had consolidated my debts into a loan.'
Bank staff get incentives for selling financial products to customers - Payment Protection Insurance which is often sold with personal loans gains the most commission and has been heavily criticised by City watchdogs.
But HSBC denies any wrongdoing in its handling of Miss Allen. A spokesman says: 'We credit scored her and checked her affordability for the loans at every step. We even declined her for a fourth loan which proves that checks were made.
'The customer has to take some responsibility for their spending.'
But the bank has agreed to repay £799 of bank charges, which it says will be used to pay back some of her loan.