What next for bank charge claimants?
The OFT have decided, after considering the recent judgment on bank charges, not to pursue its investigation into the fairness of current unarranged overdraft charging terms. This news will be very disappointing for many thousands of consumers who were looking for guidance from the regulator in the hope that they would continue the test case, perhaps under different case law.
Sadly this really looks like the end for the vast majority of those that had claims sitting in the courts and for the few that had not yet submitted claims awaiting the outcome.
This episode has just confirmed that the UK’s consumer laws need beefing up. Although the regulator believes the way consumers have been dealt with by the banks is unfair they now have very little power to do anything about it.
Some campaigners however are claiming that there may be a new line to pursue under s140 of the Consumer Credit Act which covers the relationship between the lender and the customer and which must be fair.
Under s140 it is for the banks to prove charges are fair rather than customers to prove they're not. I expect whether this is a possible way forward will become clearer over the coming weeks.
Outlook for claimants
So what do you do if you have a complaint about bank charges? Basically the same as you did before the ill fated OFT test case.
You first speak to the bank and raise your complaint. They then have 8 weeks to resolve the issue after which time, if the matter is still not resolved, then you can go to the Financial Ombudsman Service (FOS). Importantly it is free and the banks will have to pay the FOS £500 towards the cost of their investigation. So the moment you do this the banks know they are £500 down.
Another way forward is whether you qualify under the ‘Financial Hardship’ rules. There are a number of factors but basically you are experiencing financial hardship if you are struggling to meet your commitments each month. However your situation can then be compounded by the bank adding interest and charges for late or missed payments.
Another instance is where, you are not able to meet your basic needs with the money you have coming in and you are behind with council tax or court fines, you are about to have your home repossessed or your only income is that derived from benefits.
More can be found at Debtwizard guide to financial hardship.
The future for overdraft charges
The vast majority of account holders do not go over their limit and dip into an unauthorised overdraft so would see the OFT’s decision as the right one and say that this would keep the free banking sector going. But is it free?
We all pay for our banking in one way or another, for example through low interest rates when we are in credit, massive charges when we are not and through delays of depositing cheques or transferring funds on-line. Often moving money between different banks can take between 3 and 5 working days to clear. So who earns interest on this? I can tell you it is not you and me!!
Around only 9% of us bother to change bank accounts which confirms that we are generally lazy when it comes to managing finances and in particular choosing the right bank account. Can’t be bothered or too much hassle or haven’t got the time.
Actually over the past couple of years it has become far easier to move banks and in 2011 it is expected to become even simpler, with banks having to supply customers with enough data to enable them go online to a bank comparison website.
The banks generally receive an income circa £2.6 bn every year from unauthorised overdraft charges but this is expected to decline over the coming year as more competition and political and public outcry take affect.
- In my view there is more that needs to be done. The key areas I would like to see addressed are:
- Give customers the right to switch off any unauthorised overdraft. This would mean that, if funds weren’t available, the bank would simply not pay the direct debit, standing order or clear the cheque.
- Banks should only permit payments from unauthorised overdrafts when this is ‘responsible lending’ rather than irresponsible. For example, it is irresponsible for a bank to process a payment on an unauthorised overdraft if it knows the customer cannot afford it, and will only racks up charges.
- Overdraft charges need to be more transparent, prominent and easy to understand so customers understand the cost when they sign up for an account.
- Banks should help and support customers plan their finances, instead of milking them for fees. However, as this will cost banks money rather than bring in profit, I really can’t see it happening.
Does this affect credit card charges?
No, this is a completely different area.
If you have already paid credit card charges then you are likely to have a claim for compensation going back as far as six years in the UK, five years and a maximum £750 if you reside in Scotland and £2,000 if you reside in Northern Ireland.
We have questions and answers plus template letters here
Our much acclaimed 'Reclaiming Credit Card Charges Tool' helps you add up your charges and creates a personalized letter to print out and send to your credit card issuer.
