Bank charges test case: why charges don't add up
Alex Harries takes a look at the current bank charges test case and asks whether the current system is fair:
"Bank customers like bank charges. No, really: according to Laurence Rabinowitz QC, defence barrister for the Royal Bank of Scotland in the Office of Fair Trading's high-profile court case accusing bank charges of being unfair, most bank customers "like the present system of [bank] charges".
Well if the banks say it, it must be true...
There aren't many things in life that will see me angrily running around shouting random obscenities at passers-by, scaring small children with my mad-man behaviour and generally being an Angry Git, but banks - and their bank charges - are one of the things in my life that are bound to make me Very Very Upset Indeed.
A brief sob-story for you: a few months ago, while I was still a poor student, an £11 direct debit was taken out of my account despite being cancelled. I only had £10.47 in my account so, without enough money in my account, my bank - which shall remain nameless since they're all pretty much as bad as each other - charged me £34 for the privilege of refusing to pay the direct debit, then charged me £25 for my account being overdrawn, even though I was only overdrawn because of their charges.
Let's look at those figures again: I was 53p short. The payment was only £11. My bank took £59 in penalty charges. My last tenner was gone, leaving me without any money for the rest of that month (luckily only a week, and I managed to borrow some money from the parents). And I still had to pay the £11 direct debit, which I had cancelled in the first place.
For the vast majority of people incurring bank charges, the very fact they're incurring a charge means they are already living with little or no money available, and for a person with limited money - and this means almost every student in the UK at some time or other - having no option but to repay in the region of fifty pounds to a bank for being short of money is a penalty which they can ill afford.
Let's be realistic here: mistakes and unexpected costs happen - that's the nature of life - but the current penalty system is very good at putting those living on the bread-line into a spiral of ever-increasing debt which they can't get out of.
In the consumer-led backlash against banks' charges, even MPs have become involved: "I think that banks are in fact extorting money from the most vulnerable people in society," says Andrew George, Lib Dem MP for West Cornwall and the Isles of Scilly. "It is inevitable that those on the lowest incomes who have the greatest difficulty maintaining their accounts in credit will be the most vulnerable to these charges."
Banks have been heard to claim justification of these measures by saying they offer financial advice to customers to help them stay out of debt, but the simple fact here is that, if I earn £300 in a month, and my expenses are £300.01, then my bank's inevitable demand for £59 to cover "their costs" is not only an unfair penalty; it's a nasty, spiteful and impersonal punishment for not being rich enough.
Financial advice, therefore, is not the cure in most cases: consumers living with little money to spare need to have every opportunity to plan their finances, and to be able to recover from financial hardship without being forced by their banks into a position of owing penalty charges using techniques even the most vicious of loan sharks would find questionable.
A few years ago, I got into a total mess whilst studying, paying between £100 and £150 a month in charges, and I could do little to dig myself out of that particular hole.
There is no end of good, clear advice available online for consumers to claim their bank charges back, although some companies have tried to cash in on this situation by offering to claim back your charges on your behalf, in exchange for a percentage of your claim amount.
Recommended reading is the publicly-driven community website, The Consumer Action Group, at www.consumeractiongroup.co.uk, but there's lots of information out there - a quick Google search on "reclaim bank charges" should set you off in the right direction.
Currently, charges up to six years old can be claimed comparatively easily, but beyond that time period not many have claimed as the vast majority of advice suggests that a case could fail. However, some claimants have been successful in recovering bank charges up to ten years old.
At the moment though, almost all claims are on hold as courts await the outcome of this test case, the only exception to this rule being that the banks shouldn't delay where the claimant is in clear financial difficulty.
It's estimated that thousands of bank customers have issued legal papers against their banks - one of the last steps in claiming back bank charges - and out of those cases, very few make it to court.
Of those that do, there has been only one which resulted in the bank being exonerated, and analysis of that particular ruling suggests that it may have been more of an accident than an implication that the banks' charging system is fair and justified.
A key issue here is whether the penalisation of people clearly already in financial trouble is excessive: can anyone argue the system isn't currently unfair? Of course it's reasonable to accept that a fair charge, to cover the real cost to banks of dealing with overdrawn accounts, would be widely welcomed, but there is simply no way the banks can justify penalising the few for the benefit of the many.
The banks have darkly predicted that, if their penalty charging system is found to be unfair, as the OFT are claiming in court, then the days of "free" banking will rapidly come to an end, with banks charging customers to hold an account with them.
The free banking argument holds little water with those opposing the banks' views though: in an interview with the BBC, John Fingleton, OFT Chief Exec, said "We don't have free banking. At the moment customers pay for banking through surprises and through stealth."
I for one would be happy to pay my bank an account fee per month - maybe £10, for example - or even to forgo the meagre annual interest on my account in return for knowing that, if a payment bounces or I run out of money, I won't have to pay the bank upwards of £50 each time, but a more reasonable £2 or even £5 charge.
If the charges are judged to be unfair, billions of pounds could be liable for repayment.
At the end of the day, the banks have long known their charging system can't be justified: this is the widely accepted reason why, until now, almost none of the many thousands of claims have made it to court, with banks choosing to settle out of court instead.
The consumers living on low incomes who have made such an easy target for the massive penalty charges imposed by banks have finally had enough, and the banks have now been called to task. Now all we can do is watch and wait, and hope that some common sense prevails."
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Surley the banks know that they will have to pay back the penalties eventually, meantime they still charge and earn interest on our money.
Is it fair that some people have had a settlement, and others like myself have been told to wait, if the courts rule in favour of the banks, will the people that have been given their money back have to give it back to the banks? or will the banks honour everyone and pay out to everyone that has claimed? mmm I wonder.