PENALTY CHARGES

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Bailiffs entered the Halifax bank headquarters carrying a court order demanding the repayment of a customer's overdraft charges. The officials have the power to seize computers, chairs and other goods unless the bank pays the money, £1,900, or decides to fight the claim. The bailiffs were acting on behalf of Paula and Darren Share, from Clifton, Manchester, who have been claiming a total of £4,900 from the Halifax. The bank paid up £3,000 but disputed the remaining £1,900.

However, the bank failed to defend the claim made by the Shares when it went before a county court judge and so was automatically ordered to pay up. The Shares used a company called Charge Claims, which is being paid 40% of the refund, which could end up at almost £2,000. The consumer group Which? has questioned the need for these companies and points out that it is very easy for individuals to make their own refund claims.

A Halifax spokesman said the bank had not known about the court order until it was delivered and said the bank would be looking at the situation before deciding whether to challenge it or pay up. Later, the Halifax claimed the court order had been rescinded by the court because of a procedural problem but this was denied by Charge Claims. The Halifax made profits of £5.7 billion in 2006. (Source: Mail on Sunday, Apr/07)

The big banks are imposing a mark-up on current account penalty charges of up to 1,100%. However, a new study calculates the real cost for automatically bouncing a direct debit and writing a computer-generated warning letter to a customer works out at just £2.50, while it suggests the actual cost of bouncing a cheque is only £4.50. Assuming a penalty charge of £30 for blocking a direct debit, this equates to a mark-up of 1,100%. With a cheque, the mark-up is 566%.

Stephen Hone, a leading campaigner against unfair charges and founder of the website www.penaltycharges.co.uk said, "The figures clearly show the banks have been scamming people for years on these charges. They are totally unlawful, so people can go back and claim their money back." Barrister Kieron Beal of Matrix Chambers, described the fact that the banks have decided not to defend their charges in the courts as "odd" and said, "It does suggest that perhaps they are finding it difficult to justify the charges that they impose upon their customers."

The British Bankers Association, which speaks for the high street giants, says customers are made aware of the charges before they take out an account. Its chief-executive designate, Angela Knight, said the sums charged to customers should be seen as a charge for services, rather than a penalty. She said, "They're not penalties, they’re in fact service fees. We may not like the service when we go and do something wrong but nevertheless it is part of the service. The legal opinion that the banks have had is that what they’re doing is entirely legal."

The OFT chief, John Fingleton, has made clear that he is prepared to use the courts to force a blanker reduction in penalty charges. The banks themselves have hit back by warning that they will have to make up any loss in income by introducing other charges and fees. This threat, characterised as the end of free banking, would see people charged on a monthly basis just for the right to have a current account. In future, charges could be introduced for writing a cheque or processing a direct debit. (Source: Mail on Sunday, Dec/06)

Bank charges are not legally enforceable. Penalty clauses in contracts in English (and Scottish) law for breach of contract aren’t legal if the penalty exceeds the actual cost of the breach of either party.

We all know that it does not cost a bank £25 to £39 to return a Direct Debit, Standing Order or cheque, and luckily so do judges, and indeed the banks. It’s purely a money making scheme, and a lucrative one at that, with estimates that the charges from the top 4 high street banks generated £3billion alone. One in five bank customers incur these types of charges, and because it's a bank imposing them, most assume that the bank must be legally entitled to do so.

Under the 1977 Unfair Terms (contracts) Act, the sheer fact that ALL banks make these charges makes this a breach of the act (the example given is exactly that!). This is also a breach of the 1999 Consumer Credit Act (Unfair Terms in Consumer Contracts, the OFT is already investigating the charges levied by Credit Card Companies) and possibly the Sale of Goods Act, and many others.

The banks do NOT want to go to court, they know they would lose and that it would create a lot of publicity that they do not want. In all of the letters received from banks giving the money back, they claim that it is for 'financial' reasons, ie; the cost of defending a claim would outweigh that of just paying up. In one case a bank paid 600% of what was being claimed to avoid court and has repaid back over £30,000 so far.

Surely if they were legally entitled to this money they would have defended an action by now to prove the point and stop the 'snowball' effect. How many more cases do they have to pay back before it becomes financially viable? I think we all know the real answer.

Recently as part of the settlement, some banks have informed complainents that, to paraphrase, "we'll pay up, but we'll shut your account down." Obviously if you're in financial difficulties this will be a nightmare (and interestingly breaks the Banking Code, but that's another point). However a sensible precaution before you start this process is to open up a new bank account elsewhere, which is operational, just in case this happens.

If you know all the charges you’ve paid in the last 6 years (under the stature of limitations you can only claim for the last six years), send a letter to your bank requesting a full and comprehensive list of charges made on the account (including the date of the 'offence', the exact wording used, eg, Unpaid Direct Debit, or Debit under advice etc... and the amount), using a Data Protection Act disclosure request.

If you don’t know all the charges you’ve paid in the last 6 years, send the letter asking for the information. Under the Data Protection Act, the information holder has only 40 days to provide this information. Don't worry about the extra wait, you can legally claim 8% APR on each charge for the full period, so the longer it takes them the more money you will have back. If they still refuse, or do not furnish you with this information within 40 days, report them to the informationcommissioner for a breach of the DPA.

One of four things will happen.

a) You will get a standard letter saying 'sorry you're not happy', we'll get back to you sometime in the next decade; or

b) You will get a refund

c) You will be offered a partial refund (refuse this, the money is legally yours, note we are not claiming for the extra interest incurred on overdrafts, this more than covers their costs, so don't start to feel sorry for them). You will receive a letter offering a full refund next

d) They will deny the claim that the charges are unlawful (about 50% do this)