Banks in the dock over 'rip-off' penalty fees

BANKS are being deluged by thousands of court actions a month as a consumer campaign against unfair penalty charges gains momentum.

Campaigners have called on customers to take banks to the small claims courts to get a refund of "unjust" charges - most of which are not legally enforceable, even if they are listed in the terms and conditions of an account or loan.

Banks have already paid out tens of thousands of pounds to angry customers rather than risk losing a court case - a move which could set a legal precedent and cost the banking industry millions.

Martin Lewis, the television consumer champion who created the Money Saving Expert website, described the wave of claims as "a massive revolution in favour of ordinary customers".

He said: "People fed up with disproportionate charges are turning the tables on the banks, and good luck to them."

Banks, loans companies and credit card firms together make more than 1.3 billion a year by charging penalty fees of up to 39 for unauthorised overdrafts, bounced direct debits and missed payments.

These charges have continued despite a ruling by the Office of Fair Trading (OFT) in April that any fee above 12 is unfair and unlawful, because it breaches the Unfair Terms in Consumer Contracts Regulations 1999. These say consumers must not be charged "a disproportionately high sum".

The Consumer Action Group, formed earlier this year by angry bank customers, says more than 1,200 people have applied for its advice kit on refund claims in the past week alone.

Since February, more than 11,400 subscribers to its website have downloaded a generic refund claim letter.

Among them was Robert Cumming, 36, an IT consultant from Dunfermline, who won a payout of 3,300 from Abbey.

After writing twice to the bank to demand a refund of years of backdated charges, plus interest, he received a letter offering 2,000 in settlement. He said: "I wrote back and simply said I did not accept their offer, then went ahead with a court action, which I won. After that, I got 480 from the Halifax for charges on my wife's account.

"Some of the banks are being nasty now, closing people's accounts if they go ahead with the court action, but some are paying out straight away. If you do your homework, it is an easy way to get back the money."

He added: "There were plenty of websites where people were moaning about banks, but the Consumer Action Group was the first time I had heard of someone actually prepared to go to court to do something about it."

A spokesman for HBOS yesterday refused to say how many of its customers had made refund claims. But it is understood the banking industry is keen to settle the issue before a potential showdown with the OFT.

Dave Smith, co-founder of the Consumer Action Group, has recovered thousands of pounds from banks and building societies who charged him penalty fees. "This is gaining momentum at an extraordinary rate. In the past two days we have had more than 1,200 new members.

"The banks are really feeling it, and we know some bank staff have been looking through our forums to see what is going on.

"This is years of anger and resentment coming out in the form of consumer action. It is amazing how these charges add up. They take the fees from your account, then you're not able to make other minimum payments, incurring more fees and causing more direct debits to bounce," Mr Smith said.

"Everyone knows it doesn't cost them 30 to reverse a direct debit or stop a cheque. It's a complete con."

Mr Lewis added: "At the moment, banks are not contesting these cases because the cost of settling is cheaper, but as the number of claims increases, so does the likelihood of one huge class action in a higher court. My advice to consumers is to start claiming immediately."

Banks have revealed record profits. In March, HSBC announced an increase of 11 per cent to 11.9 billion and Barclays an increase of 15 per cent to 5.28 billion.

Payback time: how to claw back unfair bank charges

THE Office of Fair Trading is currently cracking down on high penalty charges, which it has declared to be unfair.

To get a refund, the first step is to write a letter asking the bank or loan company to return any fees, backdated up to a legal maximum of six years.

Full details of the fees must be obtained from old statements or by asking the bank for a list under the Data Protection Act.

Some banks may pay out straight away, but most refuse. If a second letter doesn't result in a full pay-out, it is possible to launch a small claims action in the Sheriff Court.

In Scotland, claims of up to 750 can be pursued for a fee of up to 39 and at a maximum risk of 75 if the case fails. Guidance on making claims can be found at the Scottish Courts Administration website.

The small claims limit in England is 5,000, but in the event of a successful adjudication in Scotland it is possible to recover sums greater than 750 without the risk of further legal costs.

Anyone raising court proceedings must be prepared to undertake all of the work necessary to present their case. Websites such as www.bankcharges.info give more detailed advice.