Times article: "Student wins claim over bank charges"

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http://www.timesonline.co.uk/article/0,,2-1672922,00.html

Consumer groups welcome a groundbreaking victory that could lead to cheaper fees

A LAW student is expected to be awarded hundreds of pounds in compensation against his bank after claiming that the £32 that it charged him every time he went overdrawn was unfair.
Consumer groups and banking watchdogs yesterday welcomed the victory and said that it could open the way for thousands of similar claims and could help to bring about changes in costs to bank customers. Stephen Hone, 29, brought the civil court action against the Abbey bank, on the grounds that the penalty was “disproportionate” to the costs incurred by the bank.

He claims that the charges are in breach of the Unfair Terms of the Consumer Contracts Regulations 1999, which state that a consumer should not pay a disproportionately high amount of compensation if he or she fails to meet an obligation.

In his claim, entered at Plymouth County Court in Devon, Mr Hone said that he had been charged a total of £2,000 over six years.

He wrote: “Your charges do not reflect any actual or real loss; instead, they appear to represent a lucrative profit-making scheme.”

Although Mr Hone filed the claim last month, Abbey failed to submit a defence and the student won by default. District Judge Andrew Moon said that he had no option but to find in Mr Hone’s favour. He said: “The defendant must pay the claimant an amount which the court will decide, and costs.”

Although the case was won on a technicality, Eddy Weatherill, of the Independent Banking Advisory Service, said: “It’s great news . . . and something that’s been accepted by consumers for too long. These charges do not reflect the costs banks incur in any way whatsoever.

“I hope that others will follow his example.”

The precise amount of compensation to which Mr Hone, a father-of-three, is entitled, will be decided at a hearing next month.

The case centres around the penalty fee of £32 imposed when direct debit payments are refused. Each time it happened an automated letter was sent to Mr Hone informing him of the charge. It is the first time a customer has won such a claim relating to direct debit charges.

A spokesman for Abbey said that it had been unable to defend the case because it had not been notified of the court date. “The banking charges which Abbey levies are legitimate and proportionate to the administrative costs incurred by the bank for situations such as direct debits,” he said.

Bossyboots

It will be interesting to see if abbey file an application to strike out the judgement through lack of correct service of documents which I presume is what they will claim if they did not receive the date of the hearing.

dag_2

A spokesman for Abbey said that it had been unable to defend the case because it had not been notified of the court date.

Yeah right - if you believe that, you'll believe anything. I'm with Bossyboots on this one. Somehow, I can't see Abbey bothering with the formalities - trivial though they are.

surfcat

Is this really good news though? If the fines were much smaller, representing cost (say £5) then wouldn't a lot more people always be creeping further into debt?

dag_2

Is this really good news though? If the fines were much smaller, representing cost (say £5) then wouldn't a lot more people always be creeping further into debt?

Take your point - but what exactly is "cost" to an organisation which wouldn't exist if it couldn't make a profit? By a stretch of the imagination, the need to realise a profit could be considered a "cost".

To be honest, I think the costs involved with issuing automated letters are tiny. I think even £5 is a bit high - I'd guess that 50p is closer to the mark - maybe with base rate interest thrown in for good measure.

In the unlikely event that these excessive charges were made properly illegal (rather than just slightly illegal, as they are now) - then banks could get around it by calling it a balance-dependent interest rate. They charge a high interest rate for small debts that they'd prefer not to have, and a normal interest rate for normal-sized debts. But if you exceed your so called credit limit, the interest rate would shoot up to pay-day-loan heights.

Still, maybe I'm cynical. Personally, I think it's excellent news.

Tim_L

I'd certainly like to see a schedule of the ADDITIONAL costs incurred by the banks before believing their claims, because I simply don't believe it costs £30 to send out an automated letter. David Campbell apparently confirms this by suggesting the charges are to cover costs AND act as a deterrent (i.e. not just to pay administrative costs). The first bit is reasonable if costs can be demonstrated. The deterrent bit is ridiculous, and probably illegal: presumably this particular customer has managed to pay back the money he is owed plus the fees so is hardly a risk. He is also a law student, and can therefore be expected to be a high earner later in life. So quite apart from the dubious legalities of the practice, it's profoundly stupid customer relations to treat him in this way.

Nor is the "administration" involved actually necessary at the trigger point: the bank is in no more risk of default if someone is £10 over their overdraft limit than if they are under it. If the situation is corrected quickly then there really is no risk at all, and so the charges are hardly "proportionate" (whatever that means - I'd prefer the word "commensurate" personally). Sending out an automated warning at the cost of a stamp allowing 10 working days to sort the situation out would allow the situation to be corrected in most cases, but then again would not make money for the bank.

Many people do have problems managing their money in the real world, and can easily forget transactions or make late payments: in many respects this latter point is a direct consequence of the BACS system which takes a nonsensical 4 days to make an electronic transfer that could easily take place within 24 hours. Even if you realise you have a problem with an account (and this has happened to me occasionally despite very active and careful management of my money), making a corrective payment quickly is virtually impossible. Many organisations refuse to take even a corrective debit card payment (for example to make a credit card payment).

Banks make an enormous amount of money from us lending them our money, often at very low rates of interest. They have in return been steadily reducing the service they offer to us over the years by closing branches, outsourcing customer service, and even attempting to charge for cashpoint withdrawals. These disproportionate penalty charges are really absolutely scandalous, particularly as they tend to hit hardest those who either have difficulty managing their money or have less money to manage, i.e. the least well off.

However it does lead to a very useful thing to know, which is that if banks charge you £30 when you fail in an engagement, then it's reasonable to charge them the same when they screw up. Which they do quite regularly. I always make this charge, and without fail I have received it.

dchurch24

Can I assume that you work for Abbey National DavidCambell?

>> they are there to cover the costs incurred and to serve as a deterrent so >> that customer does not continue to break the terms in future months

In common law, a punative charge is unenforcable and would be deemed illegal, so I'm not sure that Abbey National would thank you for admitting that they are indeed 'deterrent' charges. As an employee, you could be quoted in court should Abbey ever let it get that far.

I doubt, therefore, that Abbey will be re-taking this case back to the courts, as the court would have no choice but to side with Stephen again.

There are numerous cases where banks have not fought this claim, purely as none of them want to be used as a 'test-case'.

A recent example includes Laura Saunders, who did the same thing with Yorkshire Bank Plc, who, again didn't turn up at court and she won dy default.
The bank refused to pay, so the baliffs were sent in, and sure enough, they paid up.

Now, if they had a chance of winning:

1. why not turn up at court in the first place?
2. why not have the ruling put aside, and go back for retrial, as is allowed if the defendant is ruled against in their absence?

I think we're seeing the beginning of the end for these type of charges.

FYI. The OFT has stated that these types of charges (but so far only on Credit Cards) are 'probably' illegal, and has called for banks to stop them.
Also, on October 19 and 26 the 'big four' are being called to a Commons Treasury Select Committee meeting to be 'quizzed' on how they calculate these charges.

I for one welcome it. Banks borrow our money for very, very little interest and make billions with it. To then penalise the hand that feeds it, is very poor common sense, as I think is being proven by people fighting these charges.

Tim_L

The same reason that students get cheap overdrafts - they are good future risks (or have been traditionally). If you can persuade them to stick with your service long term you will make a lot of money from them as their salary increases.

M_Thomson

davidcampbell wrote:

well thats just my opinion, if as stated this is illegal them im obviously wrong.

tim i have to disagree with you above though. how can you say it would have been ok to charge the boy less (or not at all?) just because he MIGHT earn a lot in the future?


DC

David, I have mentioned this to you before, I think you should be very careful with what you say on here. As the above poster pointed out what you said about the charges being a deterrent could be quoted in court. I agree with everything you say about people should manage money properly and read terms and conditions. I am also a bank employee (Not Abbey) and I think you will find that commenting on any matters like this or the banks policies could be a breach of your employment.

dchurch24

David, I too believe that these charges that are being made are a a deterent, so I don't think you are wrong. It's just that as their employee I'm sure Abbey would not appreciate you stating that they engage in illegal activities in a public forum.
The banks also know that the charges are punative and are used as a deterent (and has been admitted publically by HSBC and Lloyds TSB) - at worst, an automated letter sent to a customer can surely cost no more than £1. If not, why am I not charged £32 each time the bank sends me a letter to inform me of a new product or a letter informing me of an interest rate change?

The sheer fact that they MADE A PROFIT of over £3 billion last year from these charges proves that they are not liquidated damages (reimbusement for admin time etc...). If the charges were to reimburse for costs associated with the account, there would be no profit.

This could also be seen as Theft by Deception, in accordance with Section 16 of the 1968 Theft Act, "Obtaining a Pecuniary Advantage by Deception" - in other words, calling a punative charge, a reimbursement for admin costs.

...and that is my beef with the banks. Banks may run the country (directly or indirectly depending on your point of view), but should they still be above the law?

I, for one, don't think so.

Banks also make it very difficult to keep track of and manage a modern persons, modern current account. Abbey's on-line banking doesn't update at weekends for instance - an admission made to me by an Abbey Customer Service clerk. The cash-point machines (which by 2010 we will all have to pay for using) misreport balances; sometimes stating amounts from un-cleared cheques. Direct Debit amounts change, and as has happened in the past, I have not received any notification, as per the DD mandate. Recently I received a cheque from an ebay buyer, put the cheque into the bank, and it took 9 days (including the weekend) to 'clear'.

All of these things increase profits from the bank and make it increasingly more difficult for people with little time on their hands to manage their accounts. The more difficult it is to manage an account, the more likely it is that someone will incur these illegal charges. Most busy people like myself, would a.) not notice and pay the charge, or b.) not have the time to challenge the charge.

Just FYI:

In law, the following precedents (among many others) have been set:

i) The sum is a penalty if it is greater than the greatest loss which could be suffered from the breach – in other words, if it is "extravagant and unconscionable". (Dunlop Pneumatic Tyre Co. Ltd. v. New Garage and Motor Co. Ltd. (1915))

ii) If it agreed that a larger sum shall be payable in default of paying a smaller sum, this is a penalty. (Ford Motor Co. v. Armstrong (1915))

So, i. infers that charges can only cover the loss, and ii. states that if, for instance, a DD or SO is 'bounced' for the sum of 3 quid, and a charge of 32 quid is made for doing so, it should be regarded a penalty, and not enforcable in British Law.

http://www.guardian.co.uk/guardian_jobs_and_money/story/0,,1312102,00.html

Just to clarify.

EmmaLi

I object to the fact that the banks are forcing me into greater debt by charging such an extortionate amount. Maybe if the person involved hadn't been charged £32 the first few times, he wouldn't have gone overdrawn afterwards?