Learning to Live With Bank Charges

There has been considerable publicity given in recent months to the phenomenon of illegal bank charges. Essentially, banks have been getting away with imposing extortionate penalties when the customer breaches their contract. This is usually as a result of a bounced standing order or cheque. The bank then penalises the customer and, as a result, they often enter an unauthorised overdraft. Consequently, the bank then charges a further daily penalty, as well as hefty interest rates on your overdraft.

Legal precedent

It has recently come to the public attention that these charges are illegal. British common law stipulates that it is not permitted to charge a penalty for breach of contract, a rule which has had its precedent set in the courts through a series of cases dating back to the end of the 19th Century. As a result, if you find yourself a victim of these unfair charges you are perfectly entitled to seek legal recourse.

It is not in the banks' interest for any of these cases to come to court. If this occurred they would be almost guaranteed to lose, and the case would set a direct precedent for future claims. As a result, they would stand to lose millions upon millions of pounds. This immediately places you in a position of power, but only if you are confident enough not to be intimidated. The bank will do their best to scare you into paying up but, if you resist for long enough, there is no reason why you shouldn't get your money back.

Step by step

The first step in this process should be to set up another bank account. You may find that you end up getting the money back, but that your bank refuses to offer you an account any longer. As a result, opening a new account is a good safety mechanism. After this, you should begin by working out exactly how much you are owed. The law stipulates that any 'excessive' charge is illegal. So, perhaps a couple of pence for a letter notifying you that you have exceeded your limit is acceptable, but £30 certainly is not. Go back through your statements and add up exactly how much you should claim for.

Having done this, the next step should be to simply write to your bank informing them that you are making a claim. In this letter you should set out how much you are claiming back, and break this down into charges and interest. You should also demand that the bank remove any default notices which may have appeared on your credit rating as a result of non-payment of the charges - this is very important in the long term.

Your bank is legally obliged to respond within fourteen days. If this does not happen, make a phone call immediately. It may be the case that the bank now offers to give you either a full or partial refund. In the latter case, refuse to accept it and write again demanding that they pay the full balance owing to you.

Bluffing banks

Alternatively, your bank may write at this point saying that you are, in fact, not entitled to claim back the money. At this point, you should inform them that you will be taking court action against them to get your money back. Visit the Small Claims Court website and initiate court proceedings. You should understand that, at this point, you will be responsible for bearing the costs of the proceedings. However, you can claim these back in court. It is highly unlikely, however, that the case will progress this far - a more realistic outcome is that the bank will wait until the last minute and then settle with you for the full amount. Alternatively, they may completely ignore your claim. If you receive no response within fourteen days, the Court will automatically find in your favour. This seems to be the most frequent course of action on the part of the banks.

Reclaiming your charges can be a lengthy process. However, when you consider that it is fairly easy to accumulate penalties of thousands of pounds, the extra work is certainly worth it.