Donít bank on reclaiming charges

The High Court has settled the issue of bank charges – at least according to some experts who reckon customers can reclaim charges imposed for overdrafts following a test case between the Office of Fair Trading and the major high street banks.

Unfortunately it’s not that simple and the decision is just one step on a long journey to resolving the legal issue of whether bank charges are fair or not.

Charge of the bank brigade

Many of us have overdrafts with our bank meaning that we can borrow money either for free or with just a small amount of interest to pay.

The controversial charges aren’t applied unless you end up using an unauthorised overdraft. This happens when your balance either drops below £0 or exceeds your current overdraft limits, normally because you’ve cashed a cheque you can’t afford to pay or there’s a direct debit due to come out when there is not enough money in your account.

They charge how much…..

It might seem like the banks have a right to charge customers when they break the terms of their contract but the issue is really whether the charges are proportional to the cost incurred by the bank.

Campaigners say the charges are penalty fees and not related to the actual cost incurred by a bank for sending a letter to a customer.

It’s easy to see why so many people are upset about the charges they’ve had to pay when MoneyExpert data indicates that average charges for a bounced cheque sit at £32 and average charges for an unpaid standing order come in at £31.

Winners and losers

If you’re in the process of trying to reclaim your charges then don’t expect them to be refunded in the immediate future. The judge ruled that the Office of Fair Trading which has taken the big banks to court now has the right to apply consumer contract law in the case. It will be months rather than weeks before we get a judgement on the issue of whether the charges are actually illegal.

Steps to avoiding a charge

There might not be much that you can do about what goes on in the High Court but there are certainly ways to avoid further charges. One option is to stop writing cheques. The thinking here is that you may have money in your account when you write them but things can change by the time they’re due to be paid as other transactions go through.

Another method to minimise the potential for charges is to become distrustful of the balance you see at ATMs. The balance which appears here may not show other transactions still to be removed from your account.

You can also investigate taking out a current account with a provider which will provide you with an "overdraft buffer" meaning that if you’re only slightly beyond you authorised overdraft then the charges will not be applied.

Lloyds TSB for example will not charge you if you are £10 or less over your limit. This might not sound like a lot but it could be the difference between you and a nasty fee!

Don’t bank on it

If you’re regularly close to your agreed bank limit then it’s important to be careful with how you manage you finances as the charges you could be letting yourself in for will come as a big financial blow. If you’re currently trying to claim back charges then don’t count on getting your money back any time soon. The banks aren’t going to pay out without a fight so in the meantime be sure not to run up any further charges.

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