21 February 2007David Prosser
Beleaguered bank bosses are refusing to accept they have been illegally charging customers for breaching their overdraft limits, as they face an overwhelming response to The Independent's report on the issue yesterday.
Consumer groups that have been campaigning to persuade customers to reclaim thousands of pounds worth of bank charges stretching back six years reported a huge increase in the numbers of people planning to complain. Martin Lewis, the founder of Moneysavingexpert.com, the internet site that has been leading the campaign since November, said more than one million people will have downloaded complaints forms and template letters by the end of the week.
Mr Lewis said more than 20,000 people had downloaded the forms by 3pm yesterday, following The Independent's story, with hundreds more logging on every minute. "Thanks to that report, people are now realising this is something that is real," he said. "It's not a gimmicky thing that is only for financial nerds, but a straightforward process anyone can follow in order to claim a refund that is potentially worth thousands of pounds."
Which?, the consumer group that has been running an "Anti Social Banking Order (Asbo)" campaign for more than a year, said it too had seen a massive spike in customer complaints yesterday. "We've had a huge response since the publication of your story," said Which?'s Helen Ainsworth last night. "It's been a phenomenal day - we've had 2,400 downloads already; in one day that's more than a tenth of the total who had previously asked for our template letters."
The issue of overdraft charges also generated an angry chorus of response from Westminster. Vincent Cable, the Liberal Democrats' treasury spokesman, said: "What is emerging very clearly is that the banks have been allowed to get away for a very long time with excessive and unjustified charges, whose legality is doubtful. It reinforces the case for a robust champion of the consumer, in the form of the Competition Commissioner. We have calculated that every customer is now paying something like an average of £320 a year to bank shareholders.
"This has risen by nearly half, in real terms, under a Labour government. There is a real issue of very high levels of profitability that is not justified."
He also condemned the high street banks for "acting like a cartel" by threatening to end free banking if the Office of Fair Trading compelled them to reduce their charges.
A spokesman for George Osborne, theshadow Chancellor, said: "Conservatives see tackling personal debt and financial exclusion as an issue of social responsibility. There is a role for businesses, individuals and government to work together.
"Encouraging successful business and helping the increasing numbers of families who find themselves with too much debt is not incompatible. They should go hand in hand."
Britain's leading banks continued to insist they had done nothing wrong by charging unauthorised borrowing fees of up to £40. John Varley, the chief executive of Barclays Bank, which yesterday announced record profits of £7.14bn for 2006, said: "If you look at a basket of retail banking services in the UK and compare the cost of them to the equivalent cost in Europe or America or Asia, they are a lot cheaper - and I mean a lot cheaper."
Mr Varley's colleagues in the banking industry attempted to present a united front. A spokesman for HSBC, which is expected next week to announce profits of close to £12bn for 2006, said: "We do not believe the charging regime is illegal."
A spokesman for Lloyds TSB added: "We believe our charges are transparent and we make it clear to our current-account customers that if they exceed their overdraft limit, requiring the bank to provide a new limit on their account, the bank will charge for this service as it involves an administrative process which has costs associated with it."
Royal Bank of Scotland, the owner of NatWest, the final member of the big four high street banks that dominate the current account market, also rejected accusations that it had been illegally charging customers.
"NatWest believes its charges are fair, reasonable and transparent and treats all claims on a case-by-case basis," its spokesman said.
"There really is no need for a customer to get into an unarranged borrowing situation. At NatWest, we encourage customers to contact us to agree any borrowing in advance."
In addition, the Halifax Bank of Scotland group, now the UK's fifth largest bank, also stood its ground. A spokesman said: "Customers have a responsibility to operate their accounts within the terms and conditions... these state that if they have insufficient funds to meet payments or enter into overdrafts that have not been pre-arranged, then charges will be applied to their accounts."
However, despite their insistence that they have not broken the law, all the banks now admit they have routinely been refunding the charges of customers who complain about the cost of unauthorised borrowing. HSBC's spokesman said: "This is dealt with on a case-by-case basis, but if a customer is sufficiently aggrieved by the charges, chances are that they'll get a refund."
The Office of Fair Trading is now expected to provide a final ruling within weeks on unauthorised borrowing charges.
Last April, the regulator shocked the financial services industry by ruling that credit card companies that charged more than £12 when customers exceeded their borrowing limits were almost certainly behaving illegally. It also warned that the same rules were likely to apply to banks and promised an investigation.
Despite the warning, leading banks have continued to charge fees of up to £40 when customers go over their overdraft limits. Additional charges are payable for bounced cheques, failed direct debits and in instances where the bank decides to honour a payment even if the customer does not have sufficient funds.
British contract law entitles the banks to recoup their costs when a customer breaks the terms of their accounts, imposing charges for administrative work such as sending out warning letters. However, making a profit on such charges is illegal and consumer groups have consistently argued that the level at which the fees have been set breaks the law for this reason.
Research by Which? concluded that the banks earned £4.7bn from unauthorised borrowing charges last year alone.
Winners and losers
Helen, 25, from Newport;
I ran up a £2,700 overdraft with Barclays during my degree and when I did a masters, switched to HSBC. I went over my overdraft limit by £10 and the charges began to pile up. HSBC never understood the futility of charging me £80 in one day for being over my overdraft limit when I had no money to pay the charges.
Claimed back: £773 (HSBC), £120 (Barclaycard), £48 (Monument)
Ms Devon, 50;
I have been on invalidity benefit for 15 years, hard enough to manage without the bank slapping a £35 charge on if I go over my £100 overdraft limit. In the past five years, my overdraft at the most has been £181 for about four days; the majority of the time my account is in credit. I have paid over £430 in bank penalty charges in this time.
Nicky, 29, from Kent;
I work for one of the big banks and successfully gained my husband's charges back. I am launching my own claim for just under £1,000. I am very aware how little manual intervention there is in bank charges and thought the bank's profits would have been reduced but clearly not!
Claimed back: £1,000
Sam, 31, from East Sussex;
I have received over £1,500 back from Abbey. I nearly went all the way to court - boy, are they stubborn. Six days before court, they settled, but admitted no liability.
Claimed back: £1,500
Name withheld;
Co-Op bank charged me £39 for going 3p overdrawn, I complained in the branch, the manager agreed to refund the charge but took my card off me, cut it up and closed my account immediately.
Nick, 31, from Plymouth;
What made me laugh (or cry) was the letter they sent to say I was overdrawn, but would not be charged if I covered it by 3pm. Of course, the letter arrived the following day, when it was too late! I claimed back £200 from LloydsTSB. Charges are completely unreasonable, and are just a way of making profit.
Claimed back: £200
Naomi, 24, from Luton;
I have successfully claimed back more than £400 from Barclays in bank charges. I am now in the litigation stage with my Barclaycard, and have just helped my brother get started on claiming his money back against Abbey.
Claimed back: £400
http://money.independent.co.uk/personal_finance/invest_save/article2290035.ece
