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History of campaign


The Law

Media coverage


Cases summary


Every year, millions of bank customers are charged considerable sums of money by their banks in the form of penalty charges – on credit card accounts for late payment or for exceeding their credit limit; on current accounts for unauthorised overdrafts, exceeding overdraft limits, returned direct debits and returned cheques. Typical charges are in the range of 15-35 per incident. Many people are charged, in aggregate, hundreds or even thousands of pounds in a year because of a snowball effect on their finances. These charges fall predominantly on the less well off members of society. The effect of these charges is frequently to push these people into a downward spiral of increasing debt. Estimates of the amount charged by banks in this way are difficult to make accurately because the banks are, naturally, reluctant to provide these figures. Which? has suggested a figure of more than 4 billion p.a.

These charges are legally unenforceable under common law principles applying to contracts and under The Unfair Terms in Consumer Contracts Regulations 1999 (UTCCR). It is my opinion that the banks’ legal advisers almost certainly consider these charges to be legally unenforceable. Individuals have taken their banks to court to recover these charges and, almost without exception, the banks have paid up without trying to defend their position in court. If the banks' legal advisers thought that their charges were lawful, they would have gone to court to defend their position. Their argument that it is not worth while going to court to defend a claim of a few thousand pounds because it would cost them more to go to court would seem logical if there was only one or two claims from time to time. When the banks are faced with hundreds of claims, the sensible option would be to go to court to defend one or two test cases and, if the bank won those, the consumer campaign would die within weeks and very few claims would be issued in the future. By not going to court at all, the banks are paying out probably millions of pounds each year to claimants and incurring large legal bills from their permanently retained solicitors. The only sensible conclusion to draw is that they think that they would lose if they went to court.

The OFT started an investigation in 2004 into just the issue of credit card default charges and in connection with 8 prominent card issuers. The OFT finally reported after nearly 2 years on 5 April 2006. Its report concluded that these charges are “unfair” under the UTCCR and it instructed the banks to reduce the charges to 12 or lower. The OFT gave the 8 banks that it had formally been investigating until 31 May to respond to its findings. The OFT report applied directly to credit card default charges only but it said that the same principles applied to current accounts. The credit card companies have reluctantly, and as quietly as possible without any public announcements, reduced their default charges on credit cards to 12. This still means, however, that a customer with a cash flow problem will incur charges of 24 (12 for late payment, 12 for being over the credit limit) plus interest charges each month. But the banks have done nothing about charges on current accounts.

On 7 September 2006, the OFT said that it would investigate current account charges. However, it seems very likely that the OFT will drag this investigation out over a long period, probably a year or more. Then on 29 March 2007, the OFT said that it is all going to take much longer, at least until the end of 2007. See page on OFT for more information.

The current situation is, therefore, very unsatisfactory. The OFT has written a report which says that the banks are acting unlawfully. The banks, themselves, clearly feel that their legal position is precarious since they refuse to go to court to defend actions against them. Meanwhile, the banks continue to profit to the tune of billions of pounds per annum. Millions of bank customers continue to suffer badly from these charges.

Published and promoted by Bob Egerton, TR2 4RS