Unfair Bank Charges Cases in the Small Claims Court

Bank charges – and whether or not they are unfair – are big news. A large number of people have pursued banks through the small claims court to recover charges, fees or penalties that had been applied to their accounts.

What Types of Bank Charges Can be Reclaimed?

Some fees – such as annual account service charges or charges for making a withdrawal from a cash machine – cannot be reclaimed. The types of charges which can be reclaimed are usually those levied when a customer breaches the terms of the account. These may include charges or fees for:

• Exceeding an overdraft limit or going overdrawn without authorisation;
• A Direct Debit or a Standing Order which is not paid due to insufficient funds in the account;
• Bounced or returned cheques;
• Misuse of account or card.

Where a higher rate of interest has been applied because an account has gone overdrawn, or has exceeded the agreed overdraft limit, this may be recoverable if the account only went overdrawn because unfair charges had been applied to it.

Why are the Charges ‘Unfair’?

It has been argued that these charges are unfair because the amount charged outweighs the costs incurred by the bank due to the customer’s default. Therefore the charges, which purport to be fees for a service provided, are actually profit-making penalties.

The Office of Fair Trading Test Case on Unfair Bank Charges

In 2007 the leading High street banks agreed with the Office of Fair Trading (OFT) to participate in a test case to decide whether bank charges are subject to a legal "fairness" test. The Financial Services Authority (FSA) decided that unfair bank charges cases should be put on hold pending the outcome of the OFT case. Banks do not have to deal with queries about unfair charges while the stay is in force. The stay may not apply to claimants who are suffering financial hardship.

In April 2008 the High Court decided that bank charges did have to pass a test of fairness to be legitimate. Whilst widely hailed as a victory for consumer rights campaigners, the decision did not state that bank charges were unfair. The court also decided that the charges currently levied by banks did not amount to penalties.

The OFT has promised to reach a decision on whether the bank charges are unfair by mid-July 2008. The banks have been given leave to appeal the decision and it is believed that this may take place in November 2008. In July 2008 the FSA announced that the stay placed on unfair bank charges cases would continue until January 2009.

What Should I Do if I Have an Unfair Bank Charges Claim?

Although a stay has been placed on unfair bank charges cases currently in the system, people with potential cases should not necessarily wait before taking any action. Claims for the recovery of money are subject to a six year limitation period in England and Wales. Therefore anyone with a long history of bank charges should act quickly to ensure that, if they are successful, they recover the maximum possible amount. If the stay is lifted banks will be obliged to deal with requests for bank charges to be repaid.

The first step to reclaiming bank charges is to write a letter to the bank, or banks, stating which charges are disputed and requesting that they are reimbursed within a reasonable period. The letter should say that court action may be commenced without further notice if the bank fails to deal with the request.

If the bank charges to be reclaimed total £5000 or less the claim is likely to be suitable for the small claims court. The claim will be started like any other claim – either on-line or by filling in a form and lodging it at court. If the bank defends the claim, the case will be allocated to the small claims court after the bank files their defence.

Unfair Bank Charges and Claims Management Companies

There are many companies offering to help bank customers claim back unfair bank charges – for a fee. This may seem like a sensible option but there is plenty of free advice available on the internet. Guidance on the principals involved, the necessary paperwork and the OFT test case is available at the click of a button.

Some claims management companies have come into criticism for continuing to charge their customers even though a hold has been placed on their claims. The small claims court is specifically designed so that ordinary people can prepare and present their own cases. The special rules on costs mean that, even if the case is successful, fees paid to a claims management company may not be recoverable from the other side.