The Financial Ombudsman Service is trying to help 600 people a month recover their bank charges, but in most cases it is failing recover all the money due.
Thousands of people have successfully recovered their bank charges by following a simple process, which you can find in The Ultimate Guide To Reclaiming Bank And Card Charges. Many of them did it with the support and encouragement of experienced claimants who hang out on our Reclaim Your Unfair Charges! discussion board.
However, lots of people are concerned that they may mess up their claim, so they turn to the Financial Ombudsman Service (FOS) instead. The FOS is a free service that investigates complaints from consumers who have tried and failed to resolve a dispute with a financial organisation directly. If it finds that the customer has suffered a financial loss it will order the company to pay compensation.
This is all great. However, when it comes to bank charges, the FOS is short-changing claimants. Rather than forcing banks to justify the size of their charges, it is, in most cases, assuming that £12 is a fair charge. This means if you've been charged £25, it'll order the bank to repay £13 and keep £12, or almost half.
The problem is that this is vastly over-estimating the banks' administrative costs. Banks are not allowed to penalise people financially for breaches of contract, such as exceeding overdraft limits. All they're allowed to do is recover their costs in attending to the breach, which usually means sending you an automated letter.
Using two different methods, we can work out for ourselves that the figure of £12 must be grossly inaccurate. Firstly, thousands of people have made a full recovery of their charges by sticking to their guns. Using data from the Consumer Action Group, I find that the average recovery is £1,292. With thousands of claims this size, the banks would fight if they could, because it would knock off about £450 from most refunds. Since when did banks give money away? The only plausible answer is the banks don't feel they have a case.
Secondly, consider this: at the end of each month your bank automatically generates a figure stating your account balance. A statement letter is automatically generated and sent to you. Now compare this with a bank charge. It's automatically added to your account and an automatic letter sent at the end of the month telling you about it. It's the same technology.
Perhaps, it costs the banks £12 to send you a statement? That's £240 per person per year. Of course, this figure is impossible. The true cost must be barely more than the cost of a letter. Tens of thousands of claimants can't be wrong. I hope that most Fools will have the confidence to do their own claim.
An update! 22 January 2006
It seems that I've bad-mouthed the FOS unfairly! Today I received figures from the Financial Ombudsman Service that it has over 1,000 enquiries about bank charges every day and that most of these are being settled in full.
What happens is that the FOS contacts the bank to say that there has been an enquiry and that the bank has eight weeks to resolve it before it will investigate. During this time, the bank usually settles. About 150 cases a week are not settled in the time allowed, but they are still settled to the satisfaction of the claimant before the FOS has a chance to investigate.
According to a spokesperson for the FOS, if the bank doesn't pay in full then it will investigate, but so far the claims have never got this far! This also means that the FOS has made no ruling based on a figure of £12. Which makes me ask: why are people receiving partial settlements? It could only be because they are accepting offers from the bank. Therefore, my new tip would be by all means complain to the FOS, but don't accept a partial offer!
> Take a look at the Financial Ombudsman Service's Frequently Asked Questions page on reclaiming bank charges.
> Got a question about bank charges? The place to ask it is the Reclaim Your Unfair Charges! discussion board.
> Read The Ultimate Guide To Reclaiming Bank And Card Charges
> Don't put up with your stinking bank anymore! Put up with another stinking bank (preferably one with better interest rates) instead! Compare current accounts.