Consumers Revolt Over Penalty Fees...

Making a payment without enough money in your account to cover it means that either you’ll go over your overdraft limit, or that the cheque or direct debit will bounce. You’re also likely to face a penalty charge from your bank for doing so, ranging from £25 to £40. However a recent investigation by BBC 2 reported that the actual admin cost faced by the bank in these situations – normally sending out a letter to tell you know you’ve exceeded your limits – could be as little as £2.

The OFT, Britain’s consumer watchdog, announced back in September 2006 that it would investigate the penalty charges imposed by banks. In the meantime consumers have taken the matter into their own hands, writing to their banks to ask for repayment and threatening legal action. Many have been successful. One customer recently received £35,988 from Natwest for charges imposed on his business account.

The major banks have dismissed reports that the costs they actually face for a bounced cheque or an exceeded overdraft are very low, insisting that the fees charged are reasonable. It is estimated that banks earn between £1.4bn-£3bn in profit each year from these fees, but they argue that rather than being excessive, this income allows them to offer free banking to everyone else.

So far no complaints over penalty fees have made it to Court. However this may be set to change. Natwest is being sued by Tom Brennan, a barrister, for fees charged on his overdraft while he was still a law student. So far Mr Brennan has rejected the bank’s offers to settle.

There are two major implications if Mr Brennan’s case actually makes it to Court. Firstly, Natwest will have to disclose how much it actually costs to process a bounced cheque or administer an exceeded overdraft. Secondly, the Court will decide whether it was actually legal for the bank to charge Mr Brennan £38 each time he didn’t have enough money in his account to cover a direct debit payment. A decision in Mr Brennan’s favour could pave the way for thousands of consumers to take their banks to Court.

As for now, the jury is still out on penalty charges. Mr Brennan’s case is still pending. Meanwhile, the OFT is to expand its initial review into a full blown investigation that will be published at the end of the year. In the meantime, consumers who feel that they’ve been overcharged for going overdrawn should contact their bank. Watch this space.

Adela Read
Financial Journalist.

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