UK Bank Penalty Charges - execessive amounts illegal? food for thought here?

Boden

Just came across this article on bbc news site. wondering if there is a similar regulation in place here for penalty charges having to reflect the cost of administering them. Food for thought..

Links are:
http://news.bbc.co.uk/2/hi/business/6170209.stm
http://news.bbc.co.uk/2/hi/business/6169539.stm

Are penalty charges bank robbery?
By Ben Limberg
BBC Money Programme


Banks are making billions of pounds each year from penalty charges. But now the legality of these charges - which cost their customers an average of £30 a time - is being called into question and thousands of customers want their money back.


STEP-BY-STEP GUIDE


We have investigated why some campaigners claim penalty charges are illegal and what the banks and their regulators are doing about it.

Last year the top six High Street banks in the UK made an estimated £4.5bn from penalty charges. These are charges that are incurred for unauthorized overdrafts, bounced cheques and clearing Direct Debits when there are insufficient funds in the account.

The Campaigner

Stephen Hone is a young father of three and a law student based in Plymouth. When Stephen's bank, Abbey, removed £64 from his account for two £32 penalty charges he called his branch and asked them to pay it back.

"I was livid, I was really annoyed that they refused to give me the money back, the banks are always trying to say they're sympathetic," says Mr Hone. His bank pointed out that these charges were fair and within the terms and conditions of his contract. Mr Hone, however, believed those terms and conditions were unfair and therefore illegal.

Abbey offered to refund one of his charges.

The Legal Position

Stephen argued that under the Unfair Terms in Consumer Contracts Regulations (1999) all penalty charges have to truly reflect the cost of administering them.

They are not permitted to be a profit-making enterprise for any business. He believes if a penalty charge is higher than its administrative cost, it is illegal.


It's very, very difficult to assign costs to specific aspects of the customer relationship
Joe Garner, HSBC

Stephen called Abbey again and threatened it with court action if it didn't refund both of his charges. Furthermore he told the bank he would reclaim all the charges he had incurred over the previous six years if it did not reconsider.

The bank declined the offer and said it would defend its policy in court.

So Stephen went through his bank statements from the past six years (the legal maximum period of time that money can be reclaimed in the UK) and filed a claim at the small claims court.

Shortly after filing his claim, Abbey paid Stephen back £840. Stephen used some of this money to set up a website that advises others how to reclaim their bank charges.

The Banks

The key point in this case is that none of the banks want to reveal their true administrative cost for penalty charges.


THE BANK COMMISSION
The highest cost banks could justify for bouncing cheques is £4.50



We asked Joe Garner, of HSBC, what it costs his bank to process a charge.

"You'll understand that I won't go into specific details of individual costs", said Mr Garner.

We then asked him to give us a rough cost of these charges to which he replied: "again it's very, very difficult to assign costs to specific aspects of the customer relationship. It's very, very hard to attribute a specific price tag to each aspect of that and that's why fundamentally we don't agree to looking at one specific charge".

After asking all the big banks the same questions, without getting an answer, we decided to find out for ourselves with our own Money Programme "Bank Commission".

We asked two professors of banking and a former NatWest executive to estimate the banks' costs.


It's odd that the banks have not chosen to fight a case to date; it suggests that they are finding it difficult to justify the charges that they impose upon their customers
Kieron Beal, barrister


The highest figure they concluded that banks could justify was £4.50 - much lower than what the banks currently charge.

HSBC also told us it settles customer claims for refunds before cases are heard in court.

We are unaware of any bank opting to defend its charges in a court.

Kieron Beal, a barrister from Matrix chambers, told us: "It's odd that they've not chosen to fight a case to date. It suggests that they are finding it difficult to justify the charges that they impose upon their customers".

He believes that if a bank did go to court it would lose.

And Nick White, head of personal finance at price comparison site Uswitch.com, says that if a bank did lose a case there would be huge publicity around the issue that would alert many more consumers to the fact they could challenge the banks. It would make it much harder for the banks to defend their charges.

The regulators

The Office of Fair Trading has already forced banks to reduce their penalty charges for credit cards to a maximum £12, and it has now opened an investigation to establish what the real costs of current account penalty charges are.

The Bovingdon factor

The Money Programme went to Bovingdon - a typical English village - to find people that had also been affected by the banks' charges and to see if Stephen Hone's advice on how to claim back these charges really worked.


UK banks could earn £5bn a year from penalty charges
Open University


Jemma Miozga, a mother of one who works in a garden centre, had been charged up to £39 each time she exceeded the overdraft limit agreed with her bank, Halifax.
"The banks, I think are putting these charges on to make a profit, no-one would agree with the charges," she says.

"They are there for the banks to make a profit and it's not fair. I just thought it was what banks did. So, I was astonished when Stephen said [the charges] were illegal."

Mickey Boulton, a self-employed builder was frustrated with his bank over the amount it had charged him. "We've got in six months just under a £1,000 worth of charges. They've had a lot of money out of us, and I want it back."

As a result of Stephen's advice, Jemma successfully claimed back just under £5,000, while Mickey was offered £600, which he has accepted.

While the country waits in anticipation for the outcome of the Office of Fair Trading's inquiry, is it time to reclaim your charges?

If you think you have been a victim of what some are calling Bank Robbery, why not follow our step-by-step guide to reclaiming your bank charges, which includes letter templates to send to your bank?

The Money Programme: Bank Robbery! - BBC2, 2200 UK time, Tuesday, 12 December.

Story from BBC NEWS:
http://news.bbc.co.uk/go/pr/fr/-/2/hi/business/6169539.stm


How to claim back penalty charges
Here's a step-by-step guide to claiming back your bank account, credit card and store card penalty charges. We have also provided you with templates for form letters that you can send to your lender.
Penalty charges can be incurred for the following: unauthorised overdrafts, unpaid items such as cheques, direct debits or standing orders. These are also known as returned or bounced items.

You can claim the last six years of charges, or five if you live in Scotland (for claiming back your fees in Scotland, see the special entry below).

Some lenders have threatened to close the accounts of people after they have claimed back their charges. This is rare and unlikely to happen but if you are worried you should open an account with another bank, just in case.

You have all your statements from the past six years


Highlight all the penalty charges in your last six years of account statements.
Add up the total and then fill in all the information on the document in the box below, called '14 day letter'.
Next, post this letter by Recorded Delivery, to the branch address of your bank/lender including a photocopy of the highlighted statement pages.
The bank/lender will usually respond to the letter by either refusing to meet your claim or by offering to settle in part, or in full.
DOWNLOAD THE LETTER

Most computers will open this document automatically, but you may need Adobe Reader

If the claim is small, the bank/lender may want to settle it quickly to reduce its legal and administration costs. If the claim is large, it is more likely the bank/lender will do nothing - waiting until you actually go ahead and file a claim at court.
Check online with the Post Office to confirm the date that the bank/lender received your letter and then allow 14 days from that date for it to respond.
If, after 14 days, you have received no response at all, or are unhappy with the bank/lender's response then the next stage is to file a claim at your local small claims court (see section titled 'File at Court' below). There is a fee to file a claim. If your bank pays up, this fee is refunded at the point of settlement.
The bank/lender is then obliged to defend its case before the judge or else to pay the amount you are claiming against it. If it chooses not to defend itself, as well as paying the full amount of your claim, it will also refund your court fee. So far no bank/lender, we are aware of, has defended its penalty charges in court. (see section titled 'File at Court' below).
You have only some statements from the past six years

You can submit an estimated claim if you genuinely believe you have been charged during a period for which you have no statements. Calculate all the charges from the statements you have and if you believe the missing statements would also record similar charges, then estimate the missing amount by doing the following equation:


If one year's statements show £70 of charges then you can estimate the total amount of charges for 6 years will be: £70 x 6 = £420.00
If you have 5 months of statements and these show that you have accumulated £150 of charges in that time, then you can calculate that you have been charged on average £30 a month. (£150 divided by 5 = £30). There are 72 months in six years so 72 x £30 = £2,160.00 (if your account hasn't been open for the past six years then only multiply the average amount by the number of months the account has been open).
Fill in the necessary details in the template for the "estimated charges letter" in the box below and post it Recorded Delivery to your bank/lender's branch address.
Your bank/lender will almost certainly work out how many charges you have actually incurred in the past six years. It may contact you within 14 days to either make you an offer, in part or in full, or to state that it has refused to refund your money.
DOWNLOAD THE LETTER

Most computers will open this document automatically, but you may need Adobe Reader

If the claim is small, banks/lenders tend to settle the claim quickly to reduce their legal and administrative costs, but each organisation reacts differently. If the claim is large, then it is more likely the bank/lender will do nothing until a claim is filed at court.
Check online with the Post Office to confirm the date that the lender received your letter and then allow 14 days from that date for it to respond.
If, after 14 days, you have received no response at all, or are unhappy with the bank/lender's response then the next stage is to file a claim at your local small claims court (see section titled 'File at Court' below). There is a fee to file a claim. If your bank pays up, this fee is refunded at the point of settlement.
The lender is then obliged to defend its case before the judge or else to pay the amount you are claiming against it. If it chooses not to defend itself, as well as paying the full amount of your claim, it will also refund your court fee. So far no bank/lender we are aware of has defended its penalty charges in court. (see section titled 'File at Court' below).
What to do if you have no - or very few - bank records

Check to see how far back you can access your statements through your bank's or lender's website.

If all your statements are not available online, then phone the bank or lender to ask for the relevant information. You may be charged for this.

If the charge is more than £10 and you are unhappy to pay it, there is the option of submitting a Data Protection Act (DPA) disclosure request (see section below titled Data Protection Act disclosure request for further information).

When the statements arrive, follow the advice from the first section "You have all your statements from the past six years".

Data Protection Act Disclosure request

This request is made under the Data Protection Acts 1984 and 1998 and refers to the "right of subject access" under the acts.


DOWNLOAD THE LETTER

Most computers will open this document automatically, but you may need Adobe Reader

Use the draft Data Protection Act letter in the box on the right as it has been written to avoid confusion and delay. Using the DPA route does delay the process of claiming back penalty charges by as much as 40 days. It is therefore a last resort.

Make a note of any calls you make and what the lender tells you. Also note when you post letters etc as this will make it much easier to keep track of everything.

Once the statements or charge details arrive, then follow the advice from the section entitled "You have all your statements from the past six years".

Filing a claim in the Small Claims Court (England & Wales)

If you are unhappy with your lender's response to your "14 day letter", then the only option left is to go to court.

First check that the lender received your recorded letter and that 14 days have passed, then download the form from the link below.

You can access the Claim From online, using the links in the box below.


SMALL CLAIMS COURT FORMS

Most computers will open this document automatically, but you may need Adobe Reader

Print out the form and make two additional copies.
Take all three copies and register the claim at your local County Court.
You can find the address of your local County Court by calling the High Court on 0845 456 8770.
If you have all your statements, attach a highlighted copy of them to each claim form.
If you don't have all your statements and you are estimating your claim then include a copy of the statements you do have that show a charge to each of the claim forms.
When you file a claim, you are entitled to claim interest on all the penalty charges your bank/lender has levied against you - from the date they were originally deducted from your account. If you decide to claim the interest, attach a copy estimating the interest to each of your three N1 claim forms.
The time it takes a lender to settle claims can vary.
If you are in Scotland


DOWNLOAD THE FORM

Most computers will open this document automatically, but you may need Adobe Reader

In Scotland, you can claim back five years of penalty charges, not six.
You need to fill out a Small Claim Summons document and take it to the Sheriff Court.

There will be a charge for filing the claim.

Guidance Notes on how to fill out the form can be found here:


No time but still want to claim?

If you don't have the time or inclination to claim back penalty charges yourself, there are several companies on the internet that will do it for you. They usually keep a percentage of your claim as their fee.

All the advice given and enclosed documents are courtesy of Stephen Hone and his website www.penaltycharges.co.uk and have been used with his consent.


Story from BBC NEWS:
http://news.bbc.co.uk/go/pr/fr/-/2/hi/business/6170209.stm

Published: 2006/12/13 12:34:05 GMT

© BBC MMVII

Cabaal

I deal with this type of stuff from time to time, people getting bank charges for payments when they don't have enough in their account.

Frankly if I was living in the UK I'd be watching my bank account like crazy when using Direct debit or I'd just use a creditr card for things because some of the bank charges are just plain crazy imho