Clock Is Ticking For Refunds On Penalty Charges
Many customers have been left in limbo - not knowing if they should make a complaint against bank charges or wait, points out Daily Record
IF YOU had been contemplating asking your bank to refund bank charges, you may have decided to put matters on hold when the Office of Fair Trading (OFT) announced that it was taking a test case to the High Court next year.
The case will determine if the OFT is allowed to rule on the fairness of these charges. And until it is heard, many customers have been left in limbo - not knowing if they should make a complaint or wait.
Cases in England have been 'frozen' by the regulator, the FSA, which is allowing banks to wait until the case had been heard until they deal with complaints.
The Financial Ombudsman has also said it has stopped looking at any cases until the matter has been clarified.
The court case will establish if the OFT is allowed to rule on the fairness, or otherwise, of bank charges.
In law, it isn't permissible to charge a penalty for an unauthorised overdraft or a bounced cheque, but the banks are claiming that their charges are not really penalties but a repayment of the costs they have incurred when dealing with debt issues. There are plenty of experts who feel this is a distortion of the truth. What they believe is that banks work out roughly how much they will spend each year dealing with a variety of debt matters, then work out how many 'chargeable' events - such as bounced cheques - will occur.
They divide one by the other and come up with a manufactured charge which bears no relation to the true cost of printing off a standard letter and putting it in the post box.
If this is the case, it's a cynical policy which relies on the assumption that the poorest of the banks' customers are also the least likely to complain.
The other assumption is that the wealthiest customers - who leave money lying in their accounts on which the banks earn interest - wouldn't tolerate such high fees. Only the lowest-earning customers pay them because they feel that they are not entitled to complain.
Of those who summoned the nerve to make a stand, many were silenced by the threat that the account would be closed if a complaint were made. This is a very effective deterrent as the closure of an account necessitates the immediate repayment of any loan or overdraft.
The Govan Law Centre has been at the forefront of the campaign to reduce bank charges and offers this typical example of how one mistake can lead to an avalanche of charges: "Let's say you exceed your credit limit by £15.98. Most banks will send a letter charging £39. They may also impose a £28 monthly unauthorised overdraft fee, and will almost certainly levy unauthorised interest at over 30 per cent per annum. That's a mark-up of over 419 per cent."
Charging a fee for an unauthorised overdraft is not illegal. But charging 30 per cent unauthorised interest, plus a transaction charge of £39, and a monthly unauthorised overdraft fee of £28, looks, in law, to constitute a penalty - which is not permissible.
If you feel the charges you've paid have been unreasonable, put in a claim now. There is a time limit to the validity of a complaint - five years in Scotland - and if your problem goes back that far, you should make a case now as the clock stops ticking when the claim is submitted to court.
If the charges are more recent, experts think it unlikely that you'll lose out by waiting until the court case is over, but getting your complaint in as soon as possible may put you at the top of the queue for consideration when the ruling is finally made.
The legal situation is complicated and without any clear precedent. As a result, it seems to be changing every day.
As the OFT case could take up to five years to settle, some courts are taking action now to support those whose cases have been put on hold.
A recent ruling by a judge in England will attract the interest of many potential litigants: "Until the expiry of the stay, no further penalty charges or interest on penalty charges should be debited to the claimant's account by the defendant."