Bank charges: now it's payback time

Bank charges: now it's payback time

In all, more than 1,000 people have taken complaints about bank or card charges to the Financial Ombudsman Service - and in every single case the bank or card issuer has given a refund without contesting the case. The banks appear to be so frightened of a decision by the Ombudsman going against them - or, worse still, of a court judgment - that they are capitulating over every claim.

People who have not yet made claims should stand a good chance of winning too. All the big banking names are paying out - in some cases, they have paid more than £10,000 for charges going back up to six years (the maximum period allowed in law).

It may well be worth taking action now because the situation could change considerably in March or April, when the Office of Fair Trading is expected to make a statement that could outline what it sees as a fair level of charge. If it does, that may affect the amount you are refunded.

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Last April, the OFT said £12 was a fair amount for a credit card charge. If it says the same for current accounts, banks will have to reduce charges by nearly two thirds (many now charge £30 to £35 for going overdrawn without permission). It is also possible, however, that the OFT will postpone a comprehensive pronouncement until later in the year.

For people claiming now, two points are well worth remembering. First, the Ombudsman is becoming concerned at the activities of claims management companies in this field. Some consumers who do not want to do the paperwork themselves will not mind losing some of their compensation to pay these firms - but they may not realise that these organisations (many of whom also pursue mortgage endowment and other claims) sometimes have hefty charges. You could lose 30 per cent of your repayments to meet their fees.

Second, banks will often repay the full amount of charges taken in the last six years to customers who persist and refuse partial offers, but many accept 50 per cent offers, perhaps not realising that they could get more.

How to reclaim

1 Decide whether you are eligible. You need to have paid charges in the last six years on a current account or credit card account for going overdrawn without authorisation, or for having cheques or other payments bounce because there were insufficient funds in your bank account.

2 Produce a schedule of these charges. The easiest way (unless you are highly efficient and can do your own) is to send a £10 cheque to your bank asking them to send you a list. Under the Data Protection Act, they have 40 days to comply.

3 Open another account elsewhere. Some banks are making life difficult for customers who reclaim charges. They could try to close your account and, even if they do not, they may note you down as a difficult customer. By contrast, they cannot make it known on your credit reference files that you have reclaimed charges - so other banks will not know.

4 Write to your bank, heading your letter 'Complaint' and stating that the charges were disproportionate and unlawful and that you are asking to have them repaid. You could also claim interest at 8 per cent (simple, not compound), as this is what a court would often award if it decided in your favour.

5 Expect a reply in eight weeks, the maximum time limit under the Financial Ombudsman Scheme (FOS), to which these institutions are signed up. If they make a good offer - but less than you requested - you might accept, although it seems that in many cases they will repay all charges (but perhaps not the interest) to people who persist.

6 If they refuse or make a small offer, you can launch proceedings, either via the Ombudsman (a free service, and the easiest for most people) or through the Small Claims Court (where charges start at £30 and the maximum claim is £5,000 in England and Wales). Go to either financialombudsman.org.uk or (for the Small Claims Court) to moneyclaim.gov.uk. Make sure you keep on top of the paperwork and deadlines - especially if you are using the small claims court.

If you go to the court, the bank may simply not put in a defence in the 14 days allowed after your claim, meaning you win by default - but you may need to contact the bank again to get your money. If you choose to use the Ombudsman, the system should be smoother, and the bank should pay up without prompting.

7 Surf the internet. It is far easier to research this issue on the net than it is any other way. Try consumeractiongroup.co.uk (through which more than 5,000 customers of banks have claimed back an average of £1,300 each). Another of the many useful sites is moneysavingexpert.com. However, think carefully before signing up with one of the expensive claims handlers. They do the work for you - but at a price.

Guardian Unlimited © Guardian News and Media Limited 2006