Reclaim your bank fees

What’s the problem?

We’ve all been there. Your weekly shopping bill or a direct debit takes your account past the overdraft limit – perhaps only by a few pounds – and on your next statement you find yourself saddled with a charge of £30-35. If you’re really unlucky, you might have topped up your account in the meantime to prevent further problems, only to find that the charges ”themselves” take you back over the limit and incur yet more fees. This really is a vicious circle that can repeat itself several times in a row unless you keep a very close track on your finances. Banks can also charge for every transaction carried out while you are overdrawn: buy ten separate items at a pound each and you could find your bill is £360, not the expected £10. Needless to say, this can be costly and frustrating in the extreme.

Not only that, but it is staggeringly unfair. After all, high street banks announced a record-breaking total of £40 billion in profits for 2006. Is it reasonable for them to charge you £35 for going mere pennies over your limit? Predictably, the banks say it is. They are up-front about the charges, which are clearly stated in their terms and conditions and which they say are a genuine reflection of their own costs. Unsurprisingly (especially given the recent announced profits), customers are saying otherwise. The encouraging news is that a growing number have succeeded in reclaiming part or all of the charges made to their accounts.

Why is it illegal?

The legal principle behind their success is that, in the case of breach of contract, any charge should not exceed the costs of the breach. For the banks, this equals about a tenth of the current charges – the cost of sending an automated letter is probably only £2-4. It doesn’t matter that they have warned you about the charges: that doesn’t make it legal (any more than burglary is legalised by a warning letter).

If you push the bank on this, there is a very good chance you’ll get some or all of your money back. The bank will typically claim they’ve done nothing wrong, but are making a settlement anyway to minimise their legal costs. The reason for this is that they don’t want the precedent of an official verdict against them opening the floodgates to literally billions of pounds of reclaimed charges. Paying off a few people is simple damage limitation.

How do I reclaim my charges?

Some banks will roll over and give up without a fight; others will make the process as difficult and tedious as possible – knowing that the longer they stall you, the better chance they have of you giving up. Be warned, if you want to reclaim all of your money, you may be required to put in a fair amount of time and effort. It’s well worth familiarising yourself with the process and reading the stories of others who have successfully taken on the banks (further information below). In brief, however, the steps you’ll need to follow are:

  1. Create a backup account with another bank – It’s unlikely, but some banks may threaten your account with closure.
  2. Add up your charges – You can claim for the last six years’ worth (under UK law, any more than that is considered too far out of date). If you don’t have all your statements, the bank is required to provide them to you under the Data Protection Act. You can find relevant addresses for different banks here and a letter template here. You can be charged a maximum of £10 for back statements.
  3. Write a letter to your bank stating that their charges were unfair and that you want your money back – You can find letter templates here and here.
  4. At this stage, the bank will either pay up (rare, but increasingly likely), offer a partial settlement (you will need to decide whether to accept this or hold out for more) or, most likely, deny that the charges are illegal and refuse to pay. If so…
  5. Threaten court action – Template letters can be found at the same links given above. At this point, legal action is merely a threat, effectively restating your earlier demands in stronger terms. To raise the odds of gaining a repayment, you may like to offer the bank a 25% reduction in the amount you are claiming if they settle quickly. However, if that doesn’t work:
  6. Take it to the Small Claims Court – This sounds daunting and is genuinely something the banks rely on to put you off continuing your claim. In fact, the process is far less complicated than you might imagine. You can even file a claim online with Moneyclaim; any charges will be refunded if you win. There is a £5000 limit on Small Claims cases in England and Wales (Scotland and Ireland differ).

In the overwhelming majority of cases, the banks settle, or forfeit by not acknowledging the claim or entering a defence. If this happens, you can request a “judgement by default” online. It is very rare that they will contest the case and it is usually on a technicality when they do (for example, that you tried to claim for more than six years’ worth of charges). Should you be one of the unlucky few, further information can be found on a number of websites dedicated to fighting unfair charges, some of which are listed below.

If your charges are particularly high (some customers have racked up thousands of pounds’ worth) and you are unsure of yourself, some no-win-no-fee law firms should take up the challenge. Good luck with it all!

Websites for template letters, support forums and further information