Bank customers have paid out an average of £742 in “illegal” penalties over the past six years, it was claimed yesterday. About 18 million of the banks’ 45 million customers have been charged penalties, some as high as £39 a day, since 2001.
The figures emerged as more than one million customers seeking refunds of £713 million in disputed charges have had their claims frozen until a test case is resolved in the High Court.
Six months after The Independent began its campaign against unfair bank charges, the cost of the resulting repayments is revealed
By Martin Hickman, Consumer Affairs Correspondent
Published: 31 August 2007
Consumers challenging charges for overdrafts and bounced cheques have claimed back £2.6bn from Britain’s financial institutions, according to figures that suggest the rebellion against the banks is taking place on a greater scale than imagined.
In a dramatic victory for The Independent’s six-month assault on the charges, an estimated three million people have obtained a full or partial refund from their bank or building society.
The figures come from a YouGov poll which found that more than one third of customers had been charged fees since 2001. Refunds averaged £685. One in 20 bank customers had been billed more than £2,500. Applying the figures to the general population, the price comparison website uSwitch said its research showed that 3.8 million current account customers would have received refunds with a total of £2.6bn.
The British Bankers’ Association disputed the figure but declined to give its own estimate of the cost of the revolt against its members.
Campaigners, the consumer group Which? and the Office of Fair Trade believe unauthorised borrowing fees of up to £38 a time are illegal because they exceed costs. But in a deal that has infuriated campaigners, the OFT is allowing banks to continue levying them – while freezing compensation claims – until a High Court test case in January.
From its polling of 4,000 customers, uSwitch said Lloyds was the most aggressive big high street bank, billing £800 over the six years, with a £30 fee for an overdraft. But it said Abbey was the most prolific, charging £1,376, or £230 a year.
As the campaign against charges has gathered pace, millions of forms challenging the banks and threatening them with legal action have been downloaded from the internet. Martin Lewis, whose moneysavingexpert.com has received more than three million downloads – believes a further £500m to £1bn in refunds is currently frozen pending the OFT case.
If uSwitch is right, the banks have been paying out far more money to aggrieved customers than estimated by City analysts, who have hitherto underestimated the scale of the revolt.
The investment bank Credit Suisse suggested earlier this year that the revolt would knock £200m off the banks’ interim profits. In fact, the five biggest groups – HSBC, Barclays, RBS Group, HBOS and Lloyds – paid out a total of £400m in the first six months of 2007. Given that those five have 65 per cent of the current accounts in the UK, the total level of refunds so far this year may be £550m.
Campaigners have hailed the amount being back paid as an example of people power. “There is a massive sense of empowerment. We get letters and emails saying: ‘This is the first time I have stood up to an organisation’,” said Marc Gander, of the Consumer Action Group.
“The strength of feeling is enormous. We are talking about people who have had their entire lives compromised; their families compromised and their businesses compromised, simply for fees that will turn out to be illegal.”
Angela Knight, chief executive of the British Bankers’ Association, said uSwitch’s figures were “misleading, and to portray the industry in this way is totally wrong … We are working with the statutory consumer protection authorities to bring about a legal and fair resolution of the debate over the fees we levy for unauthorised overdrafts.”
The campaign against the fees began in earnest last year after a Plymouth law student, Stephen Hone, objected to two £32 charges levied by Abbey and looked up the law books. There, he found the 1999 Unfair Terms in Consumer Contracts Act, which allowed him to reclaim his charges and he sued the bank. Abbey paid £840 before the case reached court, sending shock waves through the financial system.
Opposition snowballed in February this year when The Independent put its campaign on the front page three times in a week. National television bulletins and other national newspapers took up the story and hundreds of thousands of claims flooded into the banks and the Financial Ombudsman Office, which at one stage was receiving 3,000 complaints a day.
Customers have successfully claimed fees running into tens of thousands of pounds. In many instances, the banks have settled straight away, but in others they have engaged in delaying tactics, obfuscation and retaliation by closing accounts. Two hundred people complained to the Information Commissioner that the banks were not detailing past charges in accordance with data protection rules.
Tracy North, of uSwitch, said the campaign against penalty fees had hit a peak, but warned that there were £731m of charges frozen pending the OFT case, saving financial providers £20m in interest alone.
“For the past six years, banks have been able to carry out this practice … it’s good so much money is now being refunded today. But there’s a lot more to be refunded.” A Which? spokeswoman, Helen Ainsworth, said: “The reason this campaign has struck such a chord with people is because they feel these charges are disproportionate and unfair considering the cost to the bank.”
Banks are estimated to make between £1.2bn and £4.7bn a year from charges when their costs are put at no more than £2 to £4 a time, taking into factors such as offices and staff. In all but a few cases, financial institutions have paid out before they have reached court in what campaigners believe is an attempt to prevent the charges being ruled illegal. If they were declared illegal, banks might have to stop charging the fees, which are a useful source of revenue.
A student campaign using the social networking website Facebook has forced an international bank into a U-turn over charges. HSBC is to abandon plans to scrap interest-free overdrafts for students leaving university this summer.
Thousands of students on Facebook had threatened to boycott the bank. The National Union of Students said this made all the difference to the protest.
The HSBC bank said it was not too big to listen to its customers.
Many students said they had joined the bank in the belief that they could take advantage of such a free overdraft to tide them over between leaving university and starting work, the NUS said.
Facebook pressure
But HSBC had planned to charge students leaving university this summer 9.9% APR on their overdrafts.
The bank said in a statement: “Following the feedback from our graduate account holders, both directly and via the NUS, we have taken the decision to freeze interest charging on 2007 graduates overdrafts up to £1,500.”
It added that it would be refunding any interest charged in August and was working with the NUS.
NUS president Gemma Tumelty said she was pleased that HSBC had listened to the concerns of students and graduates.
‘Customer loyalty’
She added: “Students and graduates are valuable future customers for banks, and it is therefore crucial that those banks recognise that their support and fair treatment is likely to be rewarded with customer loyalty in the long term.”
NUS vice president Wes Streeting said: “There can be no doubt that using Facebook made the world of difference to our campaign.
“By setting up a group on a site that is incredibly popular with students, it enabled us to contact our members during the summer vacation far more easily than would otherwise have been possible.
“It also meant that we could involve our former members - the graduates who were going to be most affected by this policy.”
HSBC said the charges would not now be applied to this year’s crop of graduate account holders, and that it was meeting with the NUS to discuss the shape of future accounts.
The protest came as banks such as HSBC are seeking to recruit new student customers at the beginning of the academic year.
Bank customers have been charged an average of £742 in ‘illegal’ penalties over the past six years, it was claimed today.This figure covers fees for ‘breaches’ such as unauthorised overdrafts, bounced cheques and unpaid direct debits.
The finding comes as the banks’ legal teams prepare for a High Court showdown in January that will decide whether they have a legal right to deduct the charges.
The most aggressive of the ‘big five’ high street banks, according to the study, is Lloyds TSB, where an average customer will have paid £800 over the past six years. However, this is dwarfed by Abbey, where the average charges have been £1,376, or £230 a year.
Across all the banks, around one customer in 20 has been charged at least £2,500 - more than £1 for every day they held their account.
Mike Naylor, personal-finance expert at online comparison service uSwitch.com, said: “All in all, these charges have provided a very lucrative income for the banks, totalling £8.6 billion for the big five in the last six years.
“Needless to say, this income will certainly be missed if the outcome of the test case isn’t in the banks’ favour.”
The figures come from interviews with more than 4,000 customers by polling company YouGov for uSwitch.
They suggest that around four out of 10 of the banks’ 45 million customers have incurred penalty charges since 2001. The charges, of up to £39 a day, were mainly for going overdrawn or beyond an overdraft limit without permission, but also for bouncing cheques and other ‘administrative’ tasks.
Eddie Weatherill, spokesman for the Independent Banking Advisory Service, said that “as an average £742 might sound relatively reasonable. But I’m dealing with a case at the moment of someone who was charged £300 in a month and a half.
“One would expect to pay something for a basic service but if you’re penalised for a poor service-that’s a different ball game.”
The uSwitch figures were dismissed as ‘nonsense’ by the British Bankers Association. Chief executive Angela Knight said: “It is an audited fact that 80 to 85 per cent of people get their banking completely free.”
Hundreds of thousands of customers have been refunded charges after threatening to take banks to court. But all outstanding claims - thought to be worth more than £700 million - have been frozen pending the outcome of the court case.
In the first six months of this year the ‘big five’ made joint profits of nearly £4 billion from their UK branches.
Banks are only allowed to recoup costs when customers break bank account terms. The banks have refused to provide a breakdown of the costs of dealing with an unauthorised overdraft, but independent research suggests it could be as little as £2.
The Office of Fair Trading is also investigating bank charges but has deferred its report until after the High Court ruling.
29 August, 2007
Two-thirds of the nation are currently unaware of how much they have to pay when going into the red on their current accounts.
The independent financial comparison website, MoneyExpert.com, says around 66 per cent of the population – or around 30 million people – admit to being completely in the dark when it comes to how much they are charged by their bank for being overdrawn.
And despite the current controversy surrounding bank charges, the survey shows that even those who have successfully claimed back a bank charge were unable to confirm how much these were.
Sean Gardner, chief executive of MoneyExpert.com, said: “Bank charges may be a hot topic in the media but many people’s idea of how much they are being charged for their overdrafts is horrible wide of the mark.
“Going overdrawn can be costly. Average unauthorised overdraft interest rates are around 25 per cent and fees for going in the red without permission can be as much as £30. it’s critical that people check with their bank to ensure they are borrowing money at a competitive rate.”
Authorised overdraft interest rates
Over a third of those who said that they did know their authorised rate think they pay only 5 per cent interest on their overdraft – cheaper than the most competitive personal loan rate on the market. A further 32 per cent think they pay between 5 and 10 per cent.
In reality, MoneyExpert.com analysis shows banks charge on average 12.35 per cent for an authorised overdraft plus – but this was only cited by 12 per cent of respondents – 1.7 million people – as the rate they think they are being charged.
Unauthorised overdraft interest rates
The study also revealed that many people are ill informed about the cost of going overdrawn without permission. MoneyExpert.com says that while the average unauthorised rate is a hefty 25.62 per cent, some 5.2 million people believe that they are charged at 10 per cent or less.
Unauthorised overdraft fees
Some 18 million people also admitted to being completely unaware of the charge their bank levies if they exceed their overdraft limit. One in seven of these had made a successful claim for a refund of charges against their bank yet still don’t know.
A further 5.5 million people think they are being charged less than £20, but with the typical charge around £28 they are probably mistaken.
Gardner said: “It’s obviously important for people to understand the consequences of going overdrawn. While it’s ultimately the customer’s responsibility to avoid going beyond their overdraft limit, banks should make their charging structures more transparent. They could also provide a clearer indication of when customers are close to going in the red.
“With recent changes in the Banking Code it’s now easier than ever to switch current accounts, so if you’re unhappy with your bank you should consider jumping ship. It’s also important to realise that other forms of borrowing can be considerably cheaper than going overdrawn – for example zero per cent credit cards and personal loans.”
WILL the first person to understand bank charges please turn on the lights.
It appears that 30million of us are fumbling around in the dark world of bank fees without a clue how much it will cost us if we go overdrawn.
This murky mess even affects those who have successfully claimed back their charges, and threatens to land them in a similar pickle once more.
Five million Brits think the overdraft is a failsafe to overspending when they are often more costly than personal loans.
The analysis shows banks charge on average 12.35 per cent for an authorised overdraft and an average 25.62 per cent for going overdrawn without permission, plus a typical one-off charge of £28.
Sean Gardner, Chief Executive of MoneyExpert.com, who conducted the research said: “Bank charges may be a hot topic but many people’s idea of how much they are being charged for their overdrafts is horribly wide of the mark.
“Average unauthorised overdraft interest rates are around 25 per cent and fees for going in the red without permission can be as much as £30.
“It’s critical that people check with their bank to ensure they are borrowing money at a competitive rate.”
Gardner added: “With recent changes in the Banking Code it’s now easier than ever to switch current accounts so if you’re unhappy with your bank you should consider jumping ship.
“It’s also important to realise that other forms of borrowing can be considerably cheaper than going overdrawn - for example zero per cent credit cards and personal loans.”
Open letter to the media
Dear Sirs,
I am dismayed by the Agreement announced recently of the deal struck between the major banks and our Regulators, which effectively brings to a halt the repayment of billions of pounds due to bank customers. Not only has the complaints procedure been halted, but the Agreement reached without any prior consultation with Consumer Groups, Regulated Claims Companies or the Law Society has also agreed to stay all claims before the Courts.
Although this agreed stay will require an Order from the Master of the Rolls, I understand that a private letter has been sent to our most Senior Judge pointing out the agreement for a stay, and asking for his consent.
The banks have out-manoeuvred, in this case, our Regulators, who are not normally perceived as naÃve, but that is the only way, in all kindness, that I can view their complicity in this case.
I do hope the Master of the Rolls rejects the Application outright or invites submissions from representatives for the Claimants. The banks have admitted repaying in aggregate this year alone something in excess of £1b voluntarily, and have not fought a single case. This Agreement, at a stroke, allows the repayment of unlawful charges to be stemmed, and gives the banks an unexpected windfall, in that no further provisions now need to be made for, perhaps, a year or two.
Worse still, because the banks do not need to make any further voluntary offers, Claimants are effectively forced to accept existing offers which would normally be rejected, and which are substantially below the full amount of the refund claimed, or face the prospect of an indefinite wait, on the outcome of Court proceedings. The Ministry of Justice admits that this could take substantially longer than the initial year of the moratorium.
I have sent emails to the Ministry of Justice and the Law Society voicing in detail my concerns (although no responses yet received), which I believe are mirrored by consumer groups as well as Claimants Solicitors acting for huge numbers of disadvantaged people, many of whom are in financial difficulties, precisely because of the unlawful payments wrongly debited to their accounts.
The OFT recently published a critical report into the banks handling of these complaints which your newspaper headlined on Saturday the 29th July as “Lies, Scams and Threats – Banks are Condemned”.
I enjoined the Master of the Rolls to have no truck with this cosy deal and allow the legal process of claims within the County Court to proceed in the normal way. The banks must consider that their position is untenable, otherwise why would they have paid out so much money, to the detriment of their own shareholders, if they had a leg to stand on.
The OFT with the full knowledge of FSA and the Ombudsman Service, have been duped into an Agreement to the detriment of the public interest, and although that is a done deal, I believe the public should be alerted to the realities that flow from such Agreement, and I do hope the Master of the Rolls either refuses to order a stay outright, or, at the very least, if he is minded to consider same, allow for the appropriate representatives of the Claimants to make submissions. Some of the conditions that may well be appropriate, if a stay is to be granted, might well include the following:-
1. Limitation should continue to run throughout the period of the stay, and the separate period covered by the Waiver.
2. The Court should refund all Court fees laid because Claimants in aggregate have expended millions in Court fees which will merely be stuck in the Court system for the indefinite period of the stay. The conditions should direct banks to return such funds to the Solicitors representing Claimants and Claims Companies who may have laid out such fees. One of the more unsavoury tactics adopted by the banks, even when they have been paying out, is to ignore protocol and the signed mandate from the client and even when in Solicitors’ hands, have made payments direct to a client or into the clients account; this has often included Court fees laid out as well. Unsophisticated clients do not understand that these monies are not all theirs and that part of them relate to Court fees and other parts relate to fees due to the Law Practices and Claims Companies. Indeed, in view of the egregious conduct of the banks as exemplified by the OFT report referred to above, the Court may wish to order a payment to every Claimant of, say, £500.00, irrespective of the outcome of the test case and not refundable in any circumstances. If the stay is removed or the Court orders the banks to refund charges in full, such payments can be taken into account.
3. The Court stay should be lifted immediately the OFT report (promised before the year end) is issued, and provided that it deems charges unfair (an almost certain likelihood).
4. Mr Anthony Sultan, an executive with the Claims Standards Council believes banks should be stopped from levying any further charges in view of the cash flow saving afforded to them, during the currency of the stay and Waiver.
The banks should be given no quarter, by an effective immunity from the Court process, as their conduct to date invites no sympathy whatsoever.
Yours sincerely
R M Gardner
Miller Gardner Solicitors
Manchester
M16 9HF
Barclays and HBOS have reported huge increases in their profits. Barclays’ profits for the first 6 months trading rose by 12% to £4.1 billion whilst HBOS have seen an increase of 13% to almost £3 billion.
Two thirds of the nation is currently unaware of how much they have to pay when going into the red on their current accounts, according to new research* from MoneyExpert.com.
The independent financial comparison website says around 66 per cent of the population - or around 30 million people - admit to being completely in the dark when it comes to how much they are charged by their bank for being overdrawn.
And despite the current controversy surrounding bank charges, the MoneyExpert.com survey shows that even those who have successfully claimed back a bank charge were unable to confirm how much these were.
Sean Gardner, Chief Executive of MoneyExpert.com, said: “Bank charges may be a hot topic in the media but many people’s idea of how much they are being charged for their overdrafts is horribly wide of the mark.
“Going overdrawn can be costly. Average unauthorised overdraft interest rates are around 25 per cent and fees for going in the red without permission can be as much as £30. It’s critical that people check with their bank to ensure they are borrowing money at a competitive rate.”
Over a third (35%) of those who said that they did know their authorised overdraft rate think they pay only 5% interest on their overdraft - cheaper than the most competitive personal loan rate on the market. A further 32% think they pay between 5-10%.
In reality MoneyExpert.com analysis shows banks charge on average 12.35% for an authorised overdraft plus - but this was only cited by 12% of respondents - 1.7 million people - as the rate they think they are being charged.
The study also revealed that many people are ill informed about the cost of going overdrawn without permission. MoneyExpert.com says that while the average unauthorised overdraft rate is a hefty 25.62%, some 11% (or 5.2 million people) believe that they are charged at 10% or less.
Some 18 million people (41%) also admitted to being completely unaware of the charge their bank levies if they exceed their overdraft limit. One in seven of these (14%) had made a successful claim for a refund of charges against their bank yet still didn’t know. A further 5.5 million people (13%) think they are being charged less than £20, but with the typical charge around £28 they are probably mistaken.
Sean Gardner added: “It’s obviously important for people to understand the consequences of going overdrawn. While it’s ultimately the customer’s responsibility to avoid going beyond their overdraft limit, banks should make their charging structures more transparent. They could also provide a clearer indication of when customers are close to going in the red.
“With recent changes in the Banking Code it’s now easier than ever to switch current accounts so if you’re unhappy with your bank you should consider jumping ship. It’s also important to realise that other forms of borrowing can be considerably cheaper than going overdrawn - for example zero per cent credit cards and personal loans.”
Notes
*ICM Research interviewed a random sample of 1016 adults aged 18+ online 17th - 19th August 2007. Interviews were conducted across the country and the results have been weighted to the profile of all adults. ICM is a member of the British Polling Council and abides by its rules. Further information at www.icmresearch.co.uk
A judge has stopped Barclays bank taking any more penalty charges and interest from a customer who sued for their return.Judge Abrahams, at Luton County Court, has ordered Barclays to stop applying the charges until a High Court test case settles the legal issues involved.
Barclays said it will be entitled to reclaim any further charges from Nadine Fry should the test case be successful.
The five main banks have handed back almost £400m in charges since January.
Barclays itself has so far repaid £87m in overdraft charges this year.
The judge suspended Ms Fry’s claim until the outcome of the test case.
John Fry, who pursued the case for his daughter, explained how he persuaded the judge also to suspend any further penalty charges.
“I argued that a stay would have serious financial implications for my daughter as she would have to continue meeting interest payments on her debts, whereas the sum in question (£1,384) would have been sufficient to clear her debt entirely,” he said.
‘Not general policy’
Judge Abraham’s decision is likely to be deeply disturbing to the UK’s banks, in case other judges around the country adopt a similar line.
A spokesman for the Judicial Communications Office (JCO), which speaks on behalf of judges, said: “This is not a general policy - each case is assessed on its own merits.”
In the past year, tens of thousands of bank customers have been winning refunds of overdraft penalty charges from their banks, amounting to millions of pounds.
To resolve this vexed issue, the banks, along with the Office of Fair Trading (OFT), agreed at the end of July to stage in the High Court next year a test case on the legality of the charges.
The OFT believes they are an unfair and illegal penalty under consumer protection regulations.
The banks say they are a fair charge for providing a service to their customers while their accounts are in the red.
Waiver win
At the same time as announcing the test case, the banks won from the Financial Services Authority (FSA) a waiver from the current rules so that they can largely stop processing new claims against them until the legal issues are sorted out.
Likewise, the Financial Ombudsman Service (FOS) decided to stop dealing with the thousands of similar complaints it has been receiving.
The banks also asked the courts to suspend all existing legal actions against them for the time being.
However, any decisions on cases that are already before the courts have been left up to local judges to decide.
Marc Gander of the Consumer Action Group said the Luton judge’s decision was both just and encouraging.
“This is what should have been done from the start to maintain fair play.”
“This waiver adopted by the FSA and the Ombudsman has been profoundly unjust because it is so one-sided,” he said