What's Happening With Bank Charges?

Here's a re-cap on the bank charges situation, including tips on what you should do now.

Previously, tens of thousands of people have successfully recovered their bank charges. The situation is rather more complicated now. The financial regulator, the Financial Services Authority (FSA), has made claiming more difficult in the short term. We hope this was an accident. But let's start from the beginning of this latest chapter in the bank charges saga:

The Office of Fair Trading's court case

The Office of Fair Trading (OFT) believes, like I do, that charges for such things as exceeding overdraft limits and bounced cheques are unlawful. As a result, it is taking a 'super-claim' to the High Court on behalf of all claimants. It is taking the following banks to court:

 Abbey
 Barclays
 Clydesdale
 HBOS (which includes Halifax and Bank of Scotland)
 HSBC
 Lloyds
 Nationwide
 Royal Bank of Scotland Group (which includes NatWest)

If the claim is successful, which is very likely, it doesn't mean we'll all get our money back automatically. What will probably happen is we'll still have to submit claims to our banks, although with the High Court precedent it should be easier to win our claims, especially if your bank is one of those involved in the super-claim.

The OFT's claim could easily take as long as five years when you factor in the many tricks the banks' lawyers can use to delay a final conclusion, including appealing against the initial High Court decision.

The FSA's waiver to banks

As a result of the OFT's claim, the FSA has agreed that all banks (not just those involved in the court case) can stop dealing with complaints and claims about bank charges. All banks must do now is respond to complaints within five days, stating that the matter will not be considered until after the OFT's claim is concluded.

The FSA has paved the way for the Financial Ombudsman Service to stop dealing with bank charges complaints and the FOS has already done this. Finally, many or most of the county courts, with the blessing of the FSA, have stopped processing our individual claims.

The idea behind all this is so that there is consistency in decisions and to settle the matter of unlawful charges once and for all...

The problems caused by the waiver

...And that all sounds rather neat, doesn't it? We'd all like consistency. The huge problem, though, is that now and for many years we have absolutely no recourse under the law for getting our money back: money that was taken from us unlawfully.

Thankfully, many courts will still consider claims from people with serious financial difficulties, but there are millions more who are owed money, an average £1,000 each, who must wait. That money could significantly reduce the nation's heavy debt bill, by paying off a decent chunk of our credit-card bills, for example. This would reduce the interest payments on our credit cards by hundreds or thousands of pounds per year.

Also, many people will be pushed into financial difficulties before the OFT case is settled, because of interest on the charges, and because of further charges that accrue over the next few years.

A consistent decision may be nice and neat for future claims, but clearly it's better for individuals with claims now to be able to pursue them and get them dealt with in months, rather than have to wait years.

Will we lose our ability to claim older charges?

There is yet another concern with the FSA's waiver. Under the 'Statute of Limitations', we can make claims in the court going back just six years. Our six years are locked in from when we initiate court proceedings. So right now we could claim back to October 2001. Under court rules, if we must delay our claims till, say, October 2012, the judge will not consider claims going further back than October 2006.

To counter this, the FSA has a condition in its waiver to the banks that they must not use this rule to get out of paying claims back to 2001. The FSA can fine banks that breach this condition, or it can remove their licences to operate in this country.

My problem with this is that we can't be certain that the fine will be substantial enough to put off banks from ignoring the condition. Furthermore, I am not 100% confident that the FSA would go as far as removing a bank's licence for breaching it.

If you were to take your bank to court over this, the judge could not enforce the FSA's condition, as it's outside the courts' powers.

On the other hand, if you pursue your claim through the Financial Ombudsman Service, it is allowed to take into consideration the FSA's conditions. However, one of its representatives refused to promise to me that it would force banks to refund all its older charges.

What should you do now?

If you're in financial difficulty, you should still strongly consider pursuing a claim through court. On your claim form you should note that, despite the OFT's claim, you have serious financial difficulties and you need a resolution as soon as possible to help you out. The judge may ask for proof of your financial difficulties.

If your finances are reasonably healthy, I'm afraid you'll probably have a long wait on your hands. You could try the county courts, but most will no longer deal with our claims.

Regarding the six-year rule, despite my warnings above I think we should be OK; I'd like to think the Financial Ombudsman Service will enforce the FSA's waiver.

However, this is not certain. So, if you want to lock in your six years now, you can proceed with your claim by writing to the bank with an initial letter* and, on receiving your bank's response, go straight to issuing court proceedings*. The court will probably 'stay' your claim, which means it'll put it on hold till the OFT case is settled. If it wants to cancel the claim instead, write to it immediately stating you'd rather it was stayed, so that you can lock in the six-year period under the Statute of Limitations.

*You can get a template initial letter in part one of my guide and you can read how to initiate court proceedings in part six. Here it is: The Ultimate Guide To Reclaiming Bank And Card Charges.

> Compare current accounts.