Free advice line 0800 014 7863
Click House of Lords Appeal for latest bank charges news.
On the 28th April, The Office of Fair Trading (OFT) won the test case to establish whether bank charges for unauthorised overdrafts comes under ‘unfair contract’ rules designed to protect the public. While this is good news for consumers – especially those reclaiming unfair bank charges – it does not mean the case is closed. With up to £3.5bn made by banks each year on overdraft charges – account holders generally pay up to £38 for exceeding their limit – banks are sure to fight to the bitter end.
In January 2009, The Financial Services Authority (FSA) announced that the waiver currently keeping your unfair overdraft claims on hold has been extended until end of July 2009.
Back in the summer of 2007, the Office of Fair Trading began court action against banks on the grounds that overdraft charges were inflated above actual service costs but as the court case has yet to be concluded, the FSA has extended the waiver until later this summer.
People wishing to reclaim unfair bank charges have become increasingly frustrated over the length of time the court case have dragged out, but with millions of pounds in compensation at stake for each bank, their resistance is somewhat understandable.
The waiver, or stay on all claims, means that it remains unclear how banks should deal with compensation claims “consistently and fairly,” according to Dan Waters, FSA director or retail policy.
The Financial Ombudsman Service has agreed not to act on consumer complaints while the waiver remains in place and similarly count courts have had compensation cases put on ice - unless you are in financial hardship. If the situation changes, the FSA can lift the waiver at any time.
This the burning question which a high court test case aims to answer. An earlier judgement by Mr Andrew Smith ruled that charges can be investigated by the OFT under consumer contract regulations. The court of appeal is expected to rule on that judgement by April.
At present, the Financial Ombudsman Service (FOS), or county courts would not support a claim for compensation and banks would not be obliged to handle your complaint. As are result, we are not able to recover the £100s or even £1000s due to you at present unless you are in financial hardship.
The FSA has warned banks that if they fail to live up to the conditions set out in the waiver, waiver would be revoked.
Under the waiver, a person claiming fees back is considered to be in financial difficulty if their income is “insufficient to cover reasonable living expenses and meet financial commitments as they become due”.
The good news is the extended waiver means your claim for compensation can be extended over a longer period. You can reclaim charges backdated six years but because the waiver was introduced in July 2007, you can reclaim overdraft charges as far back as July 2001.
Apply for bank charges compensation under the Financial Hardship rule.
Banks embroiled in High Court over their charges have been permitted to appeal to the House of Lords in the hope of blocking an investigation into the legality of their practices.
The stakes are high for six major banks and the Nationwide Building Society, who could be forced to lose £3.5 million every year if their charges are deemed unlawful. The Court of Appeal ruled in March that the Office of Fair Trading should be entitled to investigate unauthorised overdraft charges, after the OFT received scores of complaints from bank customers.
It has already been a long and drawn out affair for banks who have been in court over this issue since 2007. Their last desperate attempt to secure their profits will take them to the highest court in the land where they hope to avoid paying up to £21 billion in compensation backdating 6 years.
Thousands of unhappy consumers have been waiting patiently for refunds, having filed their complaints several years ago. The small claims courts also have a backlog of cases made against banks for unauthorised overdraft charges, which have been under a ‘stay’ until the case is decided.
The Financial Services Authority issued a waiver in 2008 allowing banks to freeze ongoing claims while the court case continues.
The FSA has estimated that banks have already refunded £1 billion of bank charges in cases settled before the waiver was put in place. Unsurprisingly this brought the scandal further into the limelight and an avalanche of claims soon followed.
Further delay to the outcome of the case has been met with much criticism. Doug Taylor, of Which?, the consumer association, said: “It is outrageous that public money is being used to drag this saga out for even longer when the banks should accept the Court of Appeal’s decision and draw a line under this issue once and for all.”
It may not be too surprising that banks don’t share his viewpoint when so much money is at stake, especially when some are relying on government bailouts to stay afloat.
Banks typically charge customers up to £39 for being overdrawn on their current account. Debts.org and other campaigners argue that such charges are inflated way above the true administration costs of £2.50.
Credit card fees have also been under the spotlight having received similar criticism for over charging customers. It’s expected that overdraft charges will be capped as credit card charges have been. Credit card companies cannot charge customers more than £12 by law.
Commentators have warned that the outcome of the case, regardless if the bank are forced to open their books, could mean the end of free banking. Instead customers may be forced to pay an annual fee or even a charge per transaction for the use of the account.
David Black, of Defaqto, the financial data company, said: “If the banks see a reduced income stream in one area they will undoubtedly seek to improve their lot elsewhere.
“Sadly I think we’re getting a step closer to charges being introduced on full service current accounts.”
The banks appealing to the House of Lords are the Royal Bank of Scotland group and Lloyds Banking Group, Clydesdale, Abbey, and HSBC. Nationwide Building Society is the other big name to join them.
A ruling is not expected until 2010.
Give us a call today on 0800 520 0923 or contact us online and get what’s rightfully yours!
