Penalties and fines charged by banks

eeja

As everyone knows the case against the banks for excessive fixed charges for going into the red etc is being pursued in the courts, the Office of Fair Trading already having received a court ruling that these charges where excessive are unlawful.
Now therefore is the time to look into the fixed penalty charges made by banks for breaking a fixed deposit.
Anglo Irish Bank IOM for example charges a penalty of the full amount that the deposit is taken earlier ie if you break a 12 month deposit after 6 months, no interest whatsoever is received [Yes I am aware that Anglo Irish UK charges a fixed 2 month penalty which is quite different ].

I am pretty sure such excessive penalties are also unlawful as a bank should not be able to gain a windfall or substantially profit by such deposit breakages.
Furthermore it is a principle of English law that fines and penalties must be sanctioned by Parliament (where they exceed normal losses/damages )

Interestingly other common law countries follow this principle .
Below is from the terms and conditions of a normal Singapore bank.

Charges for breaking a fixed deposit :
£40 plus a treasury penalty calculated on the cost of covering the bank's funding position .

Do readers not agree that action should be taken against banks and financial institutions that charge excessive penalties for deposit breakages and that the OFT should step up their campagn against such unlawful practices ?
If the banks want to prohibit completely earlier withdrawals they cannot be prevented from doing so in their t & c's, but fining customers is a completely different matter .

Lansdowne

You have made this suggestion before and you are totally wrong. This is an integral part of the terms and conditions of many savings accounts.

For example, suppose that today, I invest money at, say, 4% in a certain 3-year fixed rate bond. I am making a contract with the bank which says:
- as long as I keep the money in that account for 3 years I will earn 12% total (3x4% ignoring compounding)
- if I withdraw after say 1½ years I will only earn 1 year's not 1½ years' interest (therefore 4% not 6%).

If in 1½ years, rates in the market have recovered so that I can get 7.5% elsewhere, I may make the decision to cash it in even though I lose the "180 days' penalty". Perfectly reasonable.

If Parliament wanted to ban accounts like that, they of course could. Maybe Singapore has. But that would mean institutions would stop offering certain types of product and this forum would become less interesting.

Hungerdunger

eeja - you won't let this lie, will you? This is at least the third thread in which you've been going on about this,and most responders tell you that you are wrong.

For what it's worth, here's one of my responses from last time, and I haven't read anything since then to persuade me I'm wrong:

looking at it from the bank/building societies' point of view, they enter into a clear agreement with you. They agree to pay you an attractive fixed rate of interest, knowing that your funds will stay with them until a certain date, and that you won't be bothering them during the course of that term.

If, having entered freely into that agreement you then decide not to stick to it, I can't see anything wrong with them activating the penalty to which you originally agreed. I have several fixed rate accounts. I believe I will not need the funds until their maturity dates, but if I do, I have no problem being penalised in accordance with the Ts and Cs.

eeja

Lansdowne wrote: »

You have made this suggestion before and you are totally wrong. This is an integral part of the terms and conditions of many savings accounts.

For example, suppose that today, I invest money at, say, 4% in a certain 3-year fixed rate bond. I am making a contract with the bank which says:
- as long as I keep the money in that account for 3 years I will earn 12% total (3x4% ignoring compounding)
- if I withdraw after say 1½ years I will only earn 1 year's not 1½ years' interest (therefore 4% not 6%).

If in 1½ years, rates in the market have recovered so that I can get 7.5% elsewhere, I may make the decision to cash it in even though I lose the "180 days' penalty". Perfectly reasonable.

If Parliament wanted to ban accounts like that, they of course could. Maybe Singapore has. But that would mean institutions would stop offering certain types of product and this forum would become less interesting.

Unjust, unfair and unlawful practices should never be allowed to lie.
People to have been subjected to these unlawful fines must constantly be be reminded they have a remedy , namely refusing to acceede to such penalties.
In addition the new posting above contained the actual clause which ideally should replace all current unlaful ones and which if put before a court would probably meet with its approval.
'
Charges for breaking a fixed deposit :
£40 plus a treasury penalty calculated on the cost of covering the bank's funding position

To illustrate the principle I am quite sure that the above two people posting here would seriously object to being charged a fixed £80 penalty for allowing their kids to go into the next door neighbour's garden to collect a football.
Furthermore the OFT has already won a judgement on excessive penalties charges by the banks in relation to bank charges have they not.?..see Martin's articles on the subject.

Penalties levied for deposit breakages are an exact analogy. Bank customers subjected to such charges also agreed to them before opening their accounts, did they not ?
My advice therefore to anyone unfairly penalised in this way is to seek legal advice and stand up and fight for your rights and for justice. You like me will win and receive a full refund for any such unlawful overcharge.
Anyone penalised in this way should post here and I and I am sure others will advise and help those unfortunate people free and without charge how they should go about rectifying the situation and obtaining a just resolution.

Lansdowne

You are obsessing on the word 'penalty' used by building societies etc. The word 'penalty' does not mean anything particular in law, as I have said these accounts simply give you less interest in some circumstances than others.
Some accounts use the word 'bonus' instead, i.e. if you miss a month's contribution on your YBS Regular Saver you lose the bonus and only get 0.95% instead of 3.65%. It is a feature of the T&C of those accounts as you have been told many times.
Maybe the word 'bonus' is cuddlier than the word 'penalty' but the principle is the same.

I am not aware of any ruling of any kind that says these terms are unfair or unlawful in the UK. As I said in your beloved Singapore the law may be different.

If I had kids who let their ball go next door, and if the neighbour was known to be litigious, yes I would prevent tham from asking for the ball back. And if I parked on his land where he hand a 'private clamping zone' sign, I would be charged more than £80 to get the release and this has been ruled legal.

CLAPTON

eeja wrote: »

As everyone knows the case against the banks for excessive fixed charges for going into the red etc is being pursued in the courts, the Office of Fair Trading already having received a court ruling that these charges where excessive are unlawful.
Now therefore is the time to look into the fixed penalty charges made by banks for breaking a fixed deposit.
Anglo Irish Bank IOM for example charges a penalty of the full amount that the deposit is taken earlier ie if you break a 12 month deposit after 6 months, no interest whatsoever is received [Yes I am aware that Anglo Irish UK charges a fixed 2 month penalty which is quite different ].

I am pretty sure such excessive penalties are also unlawful as a bank should not be able to gain a windfall or substantially profit by such deposit breakages.
Furthermore it is a principle of English law that fines and penalties must be sanctioned by Parliament (where they exceed normal losses/damages )

Interestingly other common law countries follow this principle .
Below is from the terms and conditions of a normal Singapore bank.

Charges for breaking a fixed deposit :
£40 plus a treasury penalty calculated on the cost of covering the bank's funding position .

Do readers not agree that action should be taken against banks and financial institutions that charge excessive penalties for deposit breakages and that the OFT should step up their campagn against such unlawful practices ?
If the banks want to prohibit completely earlier withdrawals they cannot be prevented from doing so in their t & c's, but fining customers is a completely different matter .

Of course £40 plus the cost of funding may be much greater than the current 'penalties' depending upon how interest rates have moved.

Certainly, the new overdraft 'service' charges being introduced by many banks seem to be more costly that the previous 'penalties'.

so be careful for what you wish for....

oxenryd

Hungerdunger wrote: »

They agree to pay you an attractive fixed rate of interest, knowing that your funds will stay with them until a certain date, and that you won't be bothering them during the course of that term.

Exactly!

If things were to change re fixed rate deposit accounts, I think banks would tend to go more towards what Bradford and Bingley do: withdrawals allowed only in exceptional circumstances (ie: medical reason).

At the end of the day, if you want access, get an instant access account.

masonic

eeja wrote: »

You like me will win and receive a full refund for any such unlawful overcharge.

Are you saying that you have mounted a legal challenge to reclaim an early withdrawal penalty and succeeded? I'd be very interested to hear the details, if so.

Charges for breaking a fixed deposit :
£40 plus a treasury penalty calculated on the cost of covering the bank's funding position

That seems very harsh compared with the penalties I've seen for these accounts, since a £40 fee could certainly lead some people to suffer a loss of their capital through early withdrawal. What if the cost to the bank is very high? If a customer needed early access in an emergency, they could end up only getting back a fraction of what they had deposited as if they had invested the money in the stockmarket!

Also, if early access is not explicitly prohibited, then the cost of early access should be known by the consumer at the time of opening the account and should be fixed from that time. The customer has no control over what the bank does with the capital, and therefore would need to know if early access is allowed at a cost, what that cost is.

dunstonh

Certainly, the new overdraft 'service' charges being introduced by many banks seem to be more costly that the previous 'penalties'.

Yes. We have seen many examples already where the new charges are costing people more than the old charges would have done. Yet the new charges are acceptable and apparently fairer to others.

The issue with the banks wasnt so much the charges. It was the packaging of the charges and how they were documented and applied. They have changed that now to a different way that is compliant.

This obsession some people have with the assumption that all charges are unlawful is getting silly. Next they will be arguing that we should be able to go to Tesco each week and get our food for free because it is unlawful for Tesco to charge us.

eeja

Lansdowne wrote: »

You are obsessing on the word 'penalty' used by building societies etc. The word 'penalty' does not mean anything particular in law, as I have said these accounts simply give you less interest in some circumstances than others.
Some accounts use the word 'bonus' instead, i.e. if you miss a month's contribution on your YBS Regular Saver you lose the bonus and only get 0.95% instead of 3.65%. It is a feature of the T&C of those accounts as you have been told many times.
Maybe the word 'bonus' is cuddlier than the word 'penalty' but the principle is the same.

I am not aware of any ruling of any kind that says these terms are unfair or unlawful in the UK. As I said in your beloved Singapore the law may be different.

If I had kids who let their ball go next door, and if the neighbour was known to be litigious, yes I would prevent tham from asking for the ball back. And if I parked on his land where he hand a 'private clamping zone' sign, I would be charged more than £80 to get the release and this has been ruled legal.

Thanks for that.
The word penalty was not plucked from thin air but is an amount deducted from one's balance for obtaining earlier repayment of ones funds ie at a date earlier than the contractual maturity date .
Please read the Unfair Contract Terms Act which gives power to the court to ignore any contractual trm deemed by the judge to be unfair. It is used regularly in relation to terms in a lease. Were a penalty levied for any reason deemed unreasoble it could be adjudged unfair and therefore unenforceable.
Please also read the case against the banks brought by the Office of Fair Trading which obtained a ruling against unfair penalties charged by the banks. There is absolutely no difference between a penalty levied for going into overdraft for a day and a penalty for getting ones funds back one day early. In both cases any penalty must be fair and reasonable and justified on commercial grounds.
Many banks however are going way over the top with their penalties and are gaining massive windfalls on account of the current reduced level of interest rates and should therefore be held to account in my view.

john_s_2

I think I'm one of the few people who don't see the problem with overdraft charges.

If your income is higher than your outgoings then more fool you if you go overdrawn. If your income is less than your outgoings then overdraft charges are among the least of your problems (although I don't deny they add to them).

Of course, my opinion has no bearing on the legality of them.