Bank penalty charges: the case for their defence

by Money Doctor Monday 22 October, 2007

Penalty charges; the saga continues.

The UK's banks have finally gotten round to formally defending themselves against the accusations that they levy unfair charges on customers who go overdrawn without their permission.

Yes at long last, the seven banks and the Nationwide building society have filed their defences with the High Court for the much heralded test case to be heard next January.

The Office of Fair Trading (OFT) has accused the banks of imposing unfair terms in their customers' contracts, and so have a lot of the bank customers!

The banks counter argue that current consumer regulations do not apply.

As a result, this childish spat has morphed into a hugely contentious issue and thus it needs a test case to decide what happens next.

The High Court hearing will thus endeavour to settle an unprecedented wave of litigation which has swamped courts around the UK this year.

Hundreds of thousands of you have been suing your banks, often successfully, for the return of your overdraft fees levied when you went into the red without permission.

So far banks are estimated to have refunded about £570 million to 329,000 customers, almost always as gestures of "goodwill" and without admitting any wrong doing.

Banks admitting wrong doing? Hmm, and pigs might fly...

The whole legal issue is centred on the 1999 Unfair Terms in Consumer Contract Regulations, which the OFT argues gives it the power to decide that the banks' charges may be unfair and should be reduced.

But banks argue that the law does not apply as the charges are in fact fees for them providing us all with a "core service".

The banks also argue that as their charges are fees for a service, they cannot be judged as unfair penalties under common law. Many of them back this up by pointing out that they do not oblige customers to stay in the black; if the person wants to go overdrawn without permission they simply have to pay extra for the privilege.

They also claim that to be found guilty of charging unfair fees then under the rules they have to be shown to have been acting in bad faith. This they deny, saying they tell their customers in plain English exactly what they are signing up for.

"The charges cannot be contrary to the requirement of good faith or unfair provided that the bank deals with the customer fairly and openly at the time of the conclusion of the contract," says HSBC in its defence.

Marc Gander, of the Consumer Action Group, disputed the banks' claim saying:

"The fact that they have paid out about half a billion pounds to prevent the issue going any further in the lower courts does not show much good faith".

Many of you campaigning against bank charges say the banks' arguments are false and are there simply to cloak the fact that the fees really are unfair penalties.

There is some merit in what many of you have been saying especially as estimates suggest the real cost to most banks of bouncing a cheque, or sending a customer a letter telling them that they are overdrawn, is probably around £2 each time.

No bank (as yet) has provided a detailed explanation of how they calculate their bank penalty charges, although it is likely to be a key feature of any argument in court.

The Clydesdale bank, along with some of the others, comes close to mounting a defence of their charges, saying "they have a justifiable commercial purpose" and that "such terms or charges are neither unconscionable nor extravagant".

Hopefully, everything will be revealed in court and then it's in the hands of the legal system.

But do you have any confidence in them to make the right decision?

Tom Brennan case dismissed

Categories for this post: Banking

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Comments

Blair Breton says:

Tuesday 23 October, 2007 / 13:10

I see that the transaction is undoutedly a consumer transaction so does come under this act.

Now lets say we have a transaction from person A to Company B. If Company B sets a contract with charges that not fair then they have to explain them to justify. And the contract needs to be balanced. So Person A could set up fees for Company B to pay if they do something wrong. A Bank contract is in my view not balanced. If they may a mistake there is no set rates of what they pay to a person. So my view is that Bank contract may be unfair and then their fees cannot be collected

Margaret Potter says:

Tuesday 23 October, 2007 / 14:10

I have to do an overseas transfer every 3 mths or so, and I am charged £25 every time whether it is for £100 or £1000. Surely there should be some sort of a Sliding Scale as this costs me heavily.I did ask the bank if I could set up some sort of Standing Order but to no avail.

paul newton says:

Tuesday 23 October, 2007 / 14:10

Thieves in suits - a lot of the enormous profits that they make come from squeezing the lifeblood out of people - just compare to friendly societies and credit unions - non profit making organisations are more consumer friendly and show a greater understanding of problems suffered .

FG Johnson says:

Tuesday 23 October, 2007 / 14:10

I think the banks are actually over charging people so much, I for one am an example they just charge me £90 for a direct debit i missed as well. I find it very distressing and very bad, because as soon as your money enters your account they take their bank charge and they leave you with you own money you are entilted to as well. I think the office for fair trading has the right to intervene as customers having been taking for a ride for a very long time now. So we need to have our money back.

Gail Gibbons says:

Tuesday 23 October, 2007 / 15:10

I belive the banks are the cores to a lot of business having to close............we were trading for 15years and the last 6 are bank charges have been 70K yea 70K....we are waiting for our case to be heared for our 1st claimwith Lloyds TSB 36k snd then with HSBC we have now closed down all the business and still paying off our debts....if only we could get back some of the charges i would be a happy bunny...

janet griffiths says:

Tuesday 23 October, 2007 / 16:10

Not long ago on the central news they showed us how loan sharks were leaning on people that were vunerable and needed money they were desperate so they went to these people. I feel that banks and people that push credit cards are loan sharks only under a legal umberella.But to me they are the same has those awful people that were in the news .

Ian Farrow says:

Tuesday 23 October, 2007 / 16:10

Daylight robbery! First time in more than 7 years i went £36.00 over my low overdraft limit for 2 days before my wages were paid in, fined a total of £58.00 for the privelige plus interest. Any penalty should reflect the amount and period to that you have exceeded. Thanks Halifax, this should contribute nicely to somebodies bonus....

Russell says:

Tuesday 23 October, 2007 / 20:10

I am afraid to say that the situation is now so serious for the banks that we will all be shafted by the cosy arrangements that will be made over 'brandy and cigars'. Call me cynical, but I have been around for a while and I can see a need for the financial institutions to have this problem simply 'go away'. All this takes is a gentlemen's agreement that will definitely not be in the best interests of the little man who just lost his business or is on the threshold of losing his home. I personally do not have massive bank charges, in the last 6 years, I may have paid maybe a couple of hundred pounds. The amount is irrelevant, whatever the amount, it has been stolen from me if the law currently says it has; and I want it back. I have the paperwork waiting here for the very second the High Court Hearing decides in favour us little people.... I'm not holding my breath however!

Jaime Forsyth says:

Tuesday 23 October, 2007 / 22:10

We have been told that we can not claim back our bank charges until the high courts have made a decision. So why is it ok for the banks to carry on charging fees surely it should work both ways shouldn't it? But like the man above said it's definitely not in the best interests of YOU, ME ANYONE except the banks of course. We are just the little men who gives a damn about us? we are just the little nobodies that keep the bankers in the high life that they have become accustomed to. Silly us....

Barry Arnold says:

Tuesday 23 October, 2007 / 23:10

It seems to me that the banks business model is deeply unfair. Yes they provide free banking to most of us most of the time. How is this paid for? Answer; they sting people for high charges and penalties whom are suffering cash flow problems. These of course are the every people whom cannot afford bank charges in the first place. They then debit the account at will leading to a domino effect and a spiral of debt.

Ryan O' Boyle says:

Tuesday 23 October, 2007 / 23:10

I can understand most of the concerns with bank charges as it are a very controversial issue, widely helped by the media interest. May I remind you, that UK banks provide an entire free service to the retail market. Debit /cash cards, ATM withdrawals, cheque books and many other services all provided for free. The contract set by the bank clearly states that if you go over the arranged overdraft unfortunately the bank charges. I agree the fee is high to act as a deterrent. To avoid charges simply stay within the limit. Banks have a responsible for sure, however so do the customer.

Terry Fox says:

Wednesday 24 October, 2007 / 11:10

Having gone £658 over on my Abbey Account whilst away on business I went into the local branch to pay it off on my imediate return they said it would be £958 to pay it off due to charges at £35 for every transaction some often charged 5 or more times even after I had settled the 3rd party amount they still were putting cheques through abd charging me to bounce them. I took my case to the Finiancial Omburdsmen and they persuded by letter Abbey to sort it out . A letter came from Abbey saying we will need some time but we will credit your account with the £958 as a gesture of goodwill. They didnt and sold the debt increased to £1600 to a debt agency. - Abbey? Bunch of of lying Sharks ! Going back to Fin Omb to see what they say !

Dan says:

Wednesday 24 October, 2007 / 12:10

If the banks are arguing that these charges are for services then it would be interesting to see how they can explain how bouncing a cheque is a service. In my opinion a service must give some benefit to the customer paying for it.

jim says:

Wednesday 24 October, 2007 / 14:10

My bank gives no service for these charges no letter,call ,or any contact to me whatsoever.If i miss a direct debit payment then the creditor simply trys again at a later date and charges are applied from the bank .

james mccaig says:

Wednesday 24 October, 2007 / 19:10

banks, rob the poor

Rihard Skilbeck says:

Monday 29 October, 2007 / 23:10

I phoned my bank today to ask about bank penaltly fees applied to my account when my account went over the limit. I explained that my Tax Credits have been delayed for 8 weeks and I was suffering from a financial hickup until I receive back money. They didn't listen saying the charges stood. However from a total of £250 charges over the last 2 months they agreed to waive just £50 as a gesture of goodwill. Big deal, they could have waived the whole lot helping me out. As comment above, "Rob the poor" Cheers HSBC---for nowt!!

Steve says:

Thursday 01 November, 2007 / 15:11

When I grew up, I was told, you should never tar everyone with the same brush. Yet, several years ago, some one said the Metropolitan Police were "intuitionally racist"! Banks are being allowed to tar everyone with the same brush!! There is no sliding scale for people or businesses who over-draw! Why should someone who rarely over draws be tarred with the same charges as someone who habitually over draws! The banks will hold their hands up and say it can not be done, they can not introduce a fair system. Considering how far technology has come, I would say that they could easierly introduce a system to bring in fairer charges. But as we all know, banks see people in the same way the Government does. As money making numbers. God forbid that they could work for their customers!
Therefore, until they work towards a fairer system, we should all call them ?Scourge? and tar them with the same brush! See how they like that!

Steve says:

Thursday 01 November, 2007 / 16:11

I have just noticed the message from Ryan O' Boyle - "May I remind you, that UK banks provide an entire free service to the retail market. Debit /cash cards, ATM withdrawals, and many other services all provided for free. "
I have to say fella, we get nothing for free from the Banks, if we dont pay a fee, we pay higher costs in the shops to cover the shops charges!!
Take Ikea, they charge £0.70 for every card charged, to "cover administration costs charged by the banks". Free? No such thing!!!!

cheryl says:

Tuesday 06 November, 2007 / 20:11

following a genuine mistake my son was charged for two failed direct debit payments - £70.00 then they tried to take the direct debit again 5 days later and charged him another £70.00 he hadnt any idea that the first dd had bounced, when he rang to explain the mistake they where unsimpathetic to his plea and refused to refund any of the charges can the halifax do this, i thought things had changed regarding the extortionate charges banks can make

Peter Warrender says:

Wednesday 14 November, 2007 / 00:11

Tiscali using a variable direct debi,put me £6.00 overdrawn with the Halifax bank. The Halifax who I do not have a overdraft facility with. charge me £28.00 for an unauthorised overdraft and £30.00 for going overdrawn. A whopping £58.00 pound penalty for a £6 mistake. Time for action eradicating these parasites.

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