Consumer action groups are praising Barclays’ initiative to cut its bank charges ahead of a court ruling that could see them reduced even more. The bank’s new ‘Personal Reserve’ process will allow eligible Barclays customers a buffer beyond their authorised overdraft for which they will incur just one fee of £22.

All payments and transactions will continue to be honoured and are unlimited for five days and up to the reserve limit, which will be around £250 for most customers.

Any further payments or withdrawals past this reserve will incur a further fee of £8, but there will be no interest charged, which is hoped will help people to repay the debt before getting too far into the red.

Currently charging £35 a go every time a customer exceeds their authorised overdraft, many are seeing this as a positive move from Barclays. It is also hoped that other banks will be spurred into competition and start dropping their charges accordingly.

The banks are currently appealing a high court decision which stated that the Office of Fair Trading could deem whether or not the charges levied on customers are fair, and therefore whether or not the thousands of customers who have yet to reclaim their charges will be allowed to do so.

Many got in their fast enough and reclaimed their charges before the Financial Services Authority smacked a freeze on reclaiming until the matter is clarified by law, which was done because local governments were being inconsistent in who they were granting rebates to, causing confusion.

Now, hundreds of customers still wait to find out if they can reclaim their money, which sometimes reaches thousands of pounds per person, but in the meantime, Barclays current account customers are being offered some relief.

Andrew Hagger at Moneynet.co.uk, a financial website, said: “Five days should be sufficient for the majority of people to return their account to order or contact the bank to discuss the possibility of a temporary overdraft increase. The deal is fairer and a big improvement on the previous charging structure.”

The penalty was imposed for “failings in relation to PPI offered to customers who telephoned LVBS seeking unsecured personal loans between 14 January 2005 and 8 August 2007.”

According to the FSA, when customers rang LVBS to apply for a personal loan, the cost of PPI was added to the quotation automatically. Those customers who realised that they did not have to buy the PPI cover and objected were pressurised into buying it.

The FSA foud that LVBS provided “inadequate information” to its telephone customers about the features, exclusions and limitations of PPI and “often provided information that was unclear, unfair or misleading.” Figures revealed that in 97 sales calls reviewed, the FSA found more than 60 per cent to be non-compliant.

“When customers phone for a quote, it is totally unacceptable for firms to add on the cost of insurance which the customer has not asked for,” said FSA Director of Enforcement Margaret Cole.

“Many customers make their decisions when speaking to sales staff. If those conversations are unclear or misleading it will be no defence for firms to say that full details were included in paperwork which customers received later,” she continued.
“We have made it abundantly clear that firms must ensure their PPI sales processes are up to the required standards and must change their behaviour where necessary.”

Ms Cole described the LVBS sales process as ‘flawed’ and confirmed that the company has stopped all sales of PPI and is proposing a “comprehensive programme to contact its customers and pay them compensation where appropriate”.
Compensation will include the interest paid on the PPI premiums being refunded automatically without the customers having to write to the firm and make a claim.

In a statement, LVBS has apologies to customers for “any past shortcomings in the PPI sales process” and sys it has “proactively launched an appropriate customer redress programme and will be writing to all customers affected.”
“The FSA acknowledges that the LVBS redress proposals are “significant steps towards demonstrating that the firm is treating customers fairly”, said the statement.

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This month, the OFT announced that banks are making £8.3billion a year from unfair bank charges, but Moneynet.co.uk’s Andrew Hagger says that is only telling half the story.

“The OFT’s research does not really tell us anything we didn’t know already in that it is those that fall foul of the providers’ complex and punitive charging structures that end up providing free banking for the masses,” he said.

Following research into the money that banks actually make from each charge, Mr Hagger says, “It’s not surprising that lenders make 81% of their income from such charges”.

Using the example of an unauthorised overdraft of £50 for two weeks, Moneynet.co.uk found that Lloyds TSB customers would be faced with the highest bank charges -£165.36. Alliance and Leicester customers would get £95 in fees and those who bank with Halifax would get bank charges of £63.55. The study revealed that HSBC has the lowest charges of the high street banks with the same breach costing £25.10.

Mr Hagger says that there should be a “clear, simple and widely publicised tariff” which would enable consumers to manage their money properly without “being hammered hard for minor indiscretions.”

“The consumer has a part to play too of course. It is essential that you keep close tabs on your balance and this option is available via many channels ie, in branch, via telephone, from the ATM network or online,” he said.

“If and when the decision is made to cap the current unauthorised overdraft fees and unpaid charges it is inevitable that we will move towards paying monthly or annual fees for our personal banking.

Ms Gibson claims the whole debacle started in September 2007 when, after buying a purchase for £60, she went 8p overdrawn in her account and was immediately charged £65.

She didn’t clear the overdraft, so she was charged again in October -£60, and then in December, £60. In January she was charged a further £78 and by May, Lloyds TSB’s bank charges had gone up to £20 a day.

Ms Gibson, who is due to start studying for her A levels in September told The Times newspaper that she is close to a nervous breakdown following the stress of the issue.

“This whole episode has been an absolute nightmare,” she said, “I’ve now paid more than £300 in charges but still they want more. I’ve stopped using the account and the way I’ve been treated is disgraceful.”

She claims that Lloyds TSB has been “harassing” her by phone and mail to get her to pay up.

“I feel that it is morally irresponsible that the bank can charge people such ridiculous amounts of money especially when some of the charges amount to more than my income each week,” she said.

But Lloyds TSB say that the charges Ms Gibson has received are not just for 8p.

“The charges that Ms Gibson has incurred are not for a one-off unplanned overdraft position of eight pence, they relate to an unplanned overdraft of varying amounts dating back to September 2007,” said a spokesman.

“In situations where there are extenuating circumstances, such as illness, that may affect a customer’s ability to manage their finances, we can consider waiving part or all of the charges that they have incurred. We will be contacting Ms Gibson again to discuss her personal circumstances.”

Find out how to reclaim unfair bank charges

The FSA originally put a waiver in place last July following an announcement from the Office of Fair Trading (OFT) and eight major banks that they would seek a high court ruling on whether the charges were fair.

The OFT won an initial judgment when the High Court judges that charges do come under its jurisdiction, but the banks appealed.

The appeal has drawn out the case further, and now, in light of the absence of a full legal ruling on the matter, the FSA has decided to allow the banks a further six months from the original waiver, which was until July 26.

The extension means that banks can ignore complaints until at least January 26 next year and continue imposing charges on their customers.

Last week, the OFT said that banks are making £2.6billion a year from bank charges; the extension to the waiver means they could potentially rake in a further £1.3billion from now until January.

Kevin Mountford, head of current accounts at moneysupermarket.com, was unimpressed by the further delays the new waiver will bring and says with such indecision, it no wonder UK consumers have lost faith in the banking system.

“We are seeing delays on overdraft fees, delays on the Financial Services Compensation Scheme and, all the while, nothing being done,” he said.

“There is an unhealthy addiction to committees and consultations at the moment – all at great expense – and the consumer loses with every piece of procrastination.

“Simply making a decision will improve people’s confidence in the sector rather than persisting with these seemingly perpetual delays,” he concluded.

But the FSA argues that the waiver is necessary in assisting the courts so that a legal ruling can be made on the issue.
Dan Waters, Director of retail policy at the FSA, said: “The FSA continues to work closely with the OFT and banks in reaching a resolution on the fairness of unauthorised overdraft charges.

“Our objectives continue to be certainty over this complex issue, and a fair and consistent resolution of consumer complaints about unauthorized overdraft charges.

“The FSA has reviewed the prevailing circumstances and has decided to offer firms a new waiver. The waiver will be for six months, when we expect to have a decision from the Court of Appeal.”

And Louise Hanson from consumer group Which? says although the waiver initially sounds like a further blow to the consumer fight, it is in fact a ‘necessary evil’ and that getting rid of it would not actually help unfair bank charges victims.

“Scrapping it won’t get people their money back,” she said, “only the banks can do that by conceding defeat and paying up instead of continuing to string out the process.

“In fact, lifting the waiver would actually see consumers losing more money. The clock would start ticking again on people’s claims even though they’ve no prospect of getting their money back until this whole issue is sorted out.”

Yesterday’s report by the Office of Fair Trading (OFT) criticised bank’s practices that earn them an estimated £8.3billion in revenue from bank charges – more profit than from savings and credit cards combined.

The OFT estimated that customers are actually paying an average of £152 a year for banking services through excessive overdraft and penalty charges and has warned banks that they must change the way they charge for services.

But the banks say that if they do have to cut back on fees, they will have to recoup their losses elsewhere and introduce fees of between £5 and £25 for a current account.

It is also believed that banks may start charging for things like using a cash machine, writing a cheque or paying by direct debit.

In a statement, the British Banking Association (BBA) said: “The OFT’s market study contains many good points but some of its numbers are difficult to rationalise as they use assumptions and averages and, importantly, do not recognise the costs of providing the services.”

And Angela Knight, the BBAs chief executive was quoted in the Daily Mail, “It is important that this model, which is what customers have asked for – free for their normal banking, does remain. We are worried that the OFT seems to be challenging that.
“Do you really want tom pay for ATM use, pay for statements, pay for direct debits in this country?”

The OFT’s report, which found “significant potential for slight errors in financial management to result in hundreds of pounds of charges” comes amidst the ongoing case between the and nine of the UK’s leading banks, which could decide whether unauthorised overdraft charges can be deemed unfair or not.

“There is much the banks could do to improve how the market works, and we hope this report will encourage them to take steps to do so in the near future,” said OFT chief executive, John Fingleton.

The watchdog’s market study of current accounts and linked unauthorised overdraft charges will for the first time put figures on how much consumers have been overcharged, and will also state what the adequate charge for going overdrawn should be.

In the past bank customers have been charged fees of up to £35 for returned payments, bounced cheques or exceeding their overdraft limits, which led the OFT to file a High Court claim against nine major high street banks including Barclays, Lloyds TSB, HSBC and the Royal Bank of Scotland.

The case was aimed at a decision on whether or not the unauthorised overdraft fees could be regarded as ‘unfair’, and in April this year the High Court ruled that the OFT could go ahead with its investigation to determine once and for all if the bank charges can be deemed as ‘unfair’.

This ruling has been appealed against by the banks and the next phase of the case, which began yesterday, will determine whether bank customers could challenge bank charges going back as far as six years. The case is expected to drag on well into the next year.

The banks’ refusal to accept the April ruling has led consumer groups to accuse the banks of protracting a decision for as long as possible, as attempts of thousands of Britons to reclaim unfair bank charges have been put on hold until a final judgement is made.

Although cases against ‘unfair’ bank charges are not processed at the moment, applications are still accepted and keep piling up into a massive threat for the banks.

If the High Court rules in favour of the OFT, the banks could be forced to cap their fees for unauthorised overdraft fees and to repay a fair amount of the original charges.All in all, the banks could end up paying back more than £10 billion to their customers.

Banks have warned that, should they be forced to repay these charges to their customers, it could mean the end of free banking.

Unfortunately, bank customers who have paid up to £39 a time for exceeding unauthorised overdrafts and bouncing cheques will have to wait a bit longer to find out whether or not they can reclaim the charges.

Mr Justice Andrew Smith rules that the OFT could determine whether or not the bank charges were unfair, potentially opening the floodgates for thousands more claims from disgruntled customers who feel they are being punished for going overdrawn.

The charges, the OFT has said, are only supposed to represent the costs incurred by the bank when a customer goes outside the terms and conditions of their account, but because they are disproportionate, it is striving to see them reduced.

On May 22, the seven banks and one building society involved in the test case launched their appeal against the High Court decision, maintaining that the payments are fair and justifiable.

In the meantime, many customers are confused about what this means for them – when what it actually means is that they need to sit tight and wait it out. There has been a freeze on reclaiming the charges since the FSA said that no more charges should be reimbursed until the matter was clarified by law.

The appeal is expected to be heard in July, and there will be an OFT hearing from July 7-9 in order to determine whether the terms in the banks’ current account contracts are fair under the UTCCRs (Unfair Terms in Consumer Contracts Regulations).

However, consumer campaigner groups are advocating that customers should continue to send in their claims to the banks and county courts in order to put pressure on the issue and be higher up the list if the courts ultimately rule in favour of the consumer and everyone starts claiming back their charges.

Last month, Mr Justice Andrew Smith made a judgment that banks charges are subject to the Unfair Terms in Consumer Contracts Regulation (UTCCR) 1999, allowing the OFT to press head with its investigation into the fairness of fees of as much as £39 for exceeding an overdraft.

But the banks, who maintain that the charging is fair, are appealing this decision much to the disappointment of consumer groups and those banking customers whose claims for compensation have been put on hold by the FSA until the end of the legal process.
Phil Lewis from Which? has criticized the decision to appeal, calling on the banks, which include HSBC, Barclays and Royal Bank of Scotland, to “do the decent thing” and give up the fight, while Martin Lewis, creator of consumer revenge website MoneySavingExpert.com, urged the FSA to lift its freeze on claims following the original judgment.

“The law is now plain and binding: bank charges are governed by fairness rules. Therefore, whatever happens in the Court, it’s time the regulator, the FSA, lifted its hold on reclaiming and gave people a chance to get their money back,” he said. “We’re in the bizarre position that banks continue to levy charges, while reclaimers who scored a massive victory in the first part of the test case are stymied from getting their money back.”

If the appeal fails and the OFT is given the green light to continue with its investigation, it is thought it will impose a cap – similarly to the cap put on credit card charges two years ago – on bank fees, and may force banks to pay consumers the difference on charges previously imposed. If this is the case, estimates put the cost to banks at around £10billion.

The price comparison site says that if further rulings on the issue of bank charges go the consumer’s way, banks are likely to look for alternative sources of revenue and this could mean the end of free banking.

Sean Gardner, founder of MoneyExpert.com, said, “The recent announcement provoked a huge amount of excitement yet it’s worth bearing in mind that this legal battle is far from over. We still have to wait for a further hearing - which might not be until next year - before it is decided by the court whether or not the charges are unfair.

“And the banks actually persuaded the judge that these are service charges, not penalty fees, meaning the fee they charge for unauthorised overdrafts doesn’t just have to cover their costs.”

MoneyExpert.com says that 80 per cent of people don’t pay charges currently, instead, managing their accounts so that they do not slip into the red, and it is these people, it claims, that will suffer.

“Given that most people would prefer not to see the end of free banking and would only be prepared to pay a modest monthly fee the majority of bank customers stand to lose if the banks eventually lose this case,” said Mr Gardner.

MoneyExpert.com’s research shows that 66 per cent of people would not be prepared to pay for banking, and of those that would, only 9 per cent would be prepared to pay between £6 and £10 – last year, the average acceptable monthly fee was £7.29. Most people would only be willing to pay between £1 and £5 a month for their accounts.