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FEATURE: Charge of the bank brigade

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“I fought the Lloyds and the Lloyds lost”, but will chart-topping singer Oystar’s words ring true following the OFT test case? Your Money looks at the bank charges scandal.More...

What is all this controversy surrounding ‘illegal’ bank charges about? And, if you’re one of the millions of people who feel cheated by charges your bank has levied on your account, is it too late to take action to claim them back?

It all kicked off in 2006 when the Office of Fair Trading (OFT) ruled that credit card charges issued for late or missed payments should be reduced to £12 from £25. It said the original fine was not in line with the administration costs involved in processing the payments. In the wake of this decision, thousands of bank customers began to dispute the legality of similar charges imposed by banks for bounced cheques and unauthorised overdrafts.

The debate gradually gained momentum and reached its peak in 2007, when the Financial Ombudsman recorded a 47% increase in complaints related to banks. There was a surge of people claiming back charges, using template letters from a variety of consumer action groups. While many were successful in getting refunds, many customers had their accounts closed following getting their money back. In April, the OFT simultaneously launched an investigation into the fairness of the charges under the Unfair Terms in Consumer Contract Regulations 1999 (UFTCC) and a market study assessing value for money among UK current accounts.

As a result of the situation, seven banks – Barclays, HSBC, Lloyds TSB, Clydesdale, Abbey, HBOS, Royal Bank of Scotland and Nationwide Building Society – have agreed to take part in a test case to dispute the legality of the charges. Fighting the case for the consumer is the OFT, who says that the charges comply with the UFTCC.

According to price comparison site, 71 per cent of consumers think bank charges are confusing, while 52 per cent agree with the OFT’s view that banks should be legally required to refund all charges. Sean Gardner, chief executive of Moneyfacts, says: “Some banks are starting to pre-empt the OFT by softening their terms and conditions, but the OFT mustn’t view this as an early victory.”

For now, the Financial Services Authority and Financial Ombudsman Service have agreed to let the banks taking part in the test case put their remaining complaints on hold, however it is still not too late to file a complaint, but be aware that it will not be processed until legal action has stopped.

Commenting on the freeze on processing complaints, a spokesperson for the OFT, says: “We acknowledge that this may mean consumers’ individual complaints are not resolved pending resolution of our action. However, prior to the test case, the scale of consumer litigation for the return of bank charges was resulting in conflicting outcomes and significant costs to individual consumers. By bringing this action on behalf of consumers we will gain the legal clarity necessary to achieve the fair and consistent handling of consumer complaints.”

So, whether or not Oystar’s witty ditty makes it to the top of the charts or not, the bank charges scandal has certainly provided the banking industry and the media, with an interesting story over the past few months. What will be the next chapter in the saga? Your Money will keep you updated.

The test case, which was due to begin on Wednesday, 16 January, began on Thursday 16 January 2008 instead.

For more information on claiming back bank charges, visit   


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