Bank charges and how to reclaim them

The Office of Fair Trading won a landmark ruling in the High Court on 24th April following a test case. Mr Justice Andrew Smith, presiding over the case, ruled that the OFT is able to apply consumer credit contract law to bank charges, giving it the power to judge whether they are unfair.

Before the test case, thousands of individuals reclaimed penalty charges from banks and other institutions on the basis that penalty charges cannot legally carry any profit, and that £20 to £35 per bounced cheque or failed debit is woefully excessive.

The banks tried to fend off the growing number of complaints and in several cases consumers started taking banks to the Small Claims Courts. All actions were put on hold, though, by an agreed test case between the big banks and the OFT which would decide who had the right to judge charges.

The banks claimed the fees were fair service charges, and therefore could be set at any level they deemed necessary; the OFT said they were penalties for breach of contract and therefore fell within the protection of consumer credit law - which states that penalty fees may not exceed cost.

The whole chain of events began with an OFT report that said credit card penalty fees should be no higher than £12 - and even then, £12 was probably too high. Banks did lower their fees under pressure, but now a flood of claims is likely to come in again, following the end of the test case.

Other articles in the Bank Charges section

» Common questions answered

» Step by step reclaim guide