Tory leader David Cameron says victims of "unfair" bank charges must be compensated "quickly and fairly". He'll also consider automatic payback of all charges, which could total over £10 billion.

Cameron (pictured, right) outlined his radical plans for mass compensation, assuming current court rulings are upheld, in an email (reprinted below) sent to MoneySavingExpert.com founder Martin Lewis.

This was in response to an open letter from Martin last July after the Tories called the charges unfair (see Tories brand bank charges 'unfair' news story), asking the party to back MoneySavingExpert.com's campaign that victims should have their money repaid without asking.

Cameron's commitment comes two weeks after Lib Dem leader Nick Clegg who, after spotting the letter as one of the 3.5 million recipients of the site's weekly e-mail, agreed to table a motion calling for automatic payouts, if charges are ruled unfair (see the Lib Dems bank charges payback news story).

The Conservative leader has asked his Shadow Treasury team to follow-up the proposals, and said compensation should be paid out if it's determined fees of up to £39 a time for exceeding your overdraft limit are unfair.

Over 6.2 million free bank charges reclaiming template letters have so far been downloaded from this site alone which shows the strength of the reclaiming movement (download one from the Bank Charges guide).

How significant is this?

Martin says: "Outrageously, politicians as a tribe have kept their lips firmly shut in the three and a half years since the bank charges campaign started. This is a surprise, as it's been the biggest consumer revolution since the Poll Tax riots.

"Now it's telling that they've finally taken a stance. Most important though is the opposition leader's commitment to compensation.

"While the court and the OFT are looking at current charges, there's been no mention of whether a system to payback those who've had their money taken unfairly will be set up. Here, David Cameron states clearly that he believes it should happen, which should lift the spirits of all those reclaiming."

"If automatic paybacks happen, millions of people could receive compensation totalling possibly over £10 billion pounds. Without it, I would suspect only another £2 billion to £3 billion will be reclaimed."

It's been estimated that bank charges make banks between £2.5 billion and £3.5 billion a year.

Martin will next write to the Prime Minister Gordon Brown, asking him to back the automatic payback campaign.

David Cameron's full email to Martin Lewis

Dear Martin,

Thank you for your letter about unfair bank charges. I am sorry that it has taken me a little while to reply while I have been away from London.

I'm glad you liked our White Paper. Voters now know that if they want to change the way their banks are regulated they need to change their Government.

I've never shied away from taking the right decision when it's in the interest of consumers. But equally, I don't think it is right to make policy decisions without a detailed analysis of the issues. After everything that's gone wrong over the last decade, people don't want to see politicians making policy on the hoof.

When it comes to the question of bank charges I know there are a number of unresolved legal questions, and that the original judgment on the charges is now being appealed. Obviously, we shouldn’t second-guess any possible court decision, but once the legal issues have been resolved I agree with you that bank customers must be compensated quickly and fairly for any unfair charges that they have had to pay.

So I've asked my Shadow Treasury Team to look at your suggestion that banks should pay money back automatically if the courts do rule that the charges are unfair. They will be in touch with you to take this forward and go through the details, and I hope you will feel able to stay in contact with them to discuss this further.

Many thanks, once again, for writing to me. I think it's fantastic that websites like MoneySavingExpert are empowering people to take more control over their own finances – so please do stay in touch.

Yours sincerely,

David Cameron

Commenting on the letter, Martin says: "My hope is that David Cameron truly means to see this through as a policy measure, which I'm sure is echoed by the million-plus people with cases on hold. We urge his Treasury team to consider this based on financial justice rather than just on cost.

"For people who are literate, numerate and with internet access, bank charges reclaiming should be easy and free once the current hold on reclaiming is lifted.

"Yet for many with financial phobias, mental health problems, literacy issues or simply members of a financial underclass, unless we have automatic payouts, they won't get anything. That's not justice.

"That's why we need automatic payouts and why the Lib Dems' stronger stance must be applauded.

"If we don't get this, then you can almost guarantee banks will use delaying tactics and try their damndest to not payout.

"Take the current mass of action to reclaim payment protection insurance. There, in cases where some banks lose nearly 100% of claims that get to the Financial Ombudsman, they still reject all claims as a default position when people first come to them – using language designed to dissuade people from taking it further."

Martin Lewis' open letter to David Cameron, 22 July, 2009

Dear Mr. Cameron,

I was delighted your party's banking white paper published this week, said bank charges were unfair, to quote: "There've been numerous examples of unfair treatment of consumers – the misselling of payment protection insurance and unfair bank charges."

It's the first time I've seen any major party say this. The only shame is it's too late by three years; 593,156 PPI reclaiming & 6,126,175 bank charges reclaiming template letters; and up to £2 billion of payouts.

It was back in the early days when people really needed your help, then bank accounts were being forced shut, and customers who attempted to reclaim were mistreated.

Forgive my slight scepticism that it's not a surprise to see the political elite calling these charges unfair now banks have become bogeymen, and we're near victorious at the final test case stage at the House of Lords.

So I want to ask you to support an act of real political bravery... these unlawful bank charges were taken from people's accounts without asking. No other companies have the power to take our cash in this way; if your energy supplier has a dispute with you, it needs to go to court to get the money.

So surely once it's finally legally decide they’re unfair the only right decision is for everyone who’s had bank charges to automatically be paid back the money without needing to ask for it?

Yes, it will cost. Perhaps £3 billion to £5 billion, but this is about justice, and with the nation’s finances in such a dire state, what better way to immediately stimulate the economy than putting this money back into real people’s hands.

Yours sincerely,

Martin Lewis, www.moneysavingexpert.com

Test case latest

The banks are currently appealing a High Court and Court of Appeal ruling that fairness rules apply to bank charges. The House of Lords is hearing the appeal, with a decision expected in autumn.

If fairness rules apply, the Office of Fair Trading (OFT) will decide whether charges are indeed unfair, and it has provisionally said they are unfair, which could re-open the reclaiming bandwagon.

Since the July 2007 announcement that a test case would take place, bank charges reclaiming has been on hold for most.

Yet in that time, over one million claims have been lodged by consumers hoping to get in the queue for when the floodgates re-open. It's still worth claiming to get your place in that queue.

It's estimated over £1 billion was paid out to charges victims before the hold.

However, banks must still hear your case if you have serious financial problems (see the Bank Charges Hardship guide for template letters).

If deemed unfair, the OFT is likely to agree a fair level for charges (with credit card default charges it stated £12 as a recommended figure) meaning most victims could receive the difference between each individual charge and the figure set by the OFT.

When you consider consumers can reclaim six years of charges, that could mean a ball park £10 billion could be paid out. Without automatic paybacks, only £2 billion to £3 billion is likely to be paid out given not everyone will be empowered to reclaim their cash.

Government silence

The Government has remained quiet on bank charges, even though the reclaiming bandwagon started in late 2005, when the party was already in power.

It stated last month it wants to establish a body to instigate mass group actions (see Govt plans class action body MSE News story) against banks and other financial institutions where compensation is due.

It also plans to appoint a 'consumer advocate' to oversee this process (see the Consumer Advocate blog).

Martin adds: "The Government is in political power, yet it seemingly just wants to introduce another mouth piece to tell it what the problems are.

"There's no doubt most people in the street could tell you what's going on. What we need is some political decision-making to solve the problem. The Government has it in its power to sort this, but it hasn't.

"Maybe the fact the other political parties are now stealing a march on it will spur it into action."

Further reading/Key links

Full reclaiming guide inc. free template letters: Bank Charges
Hardship reclaiming guide inc. free templates: Bank Charges Hardship
Reclaim missold debt insurance: PPI Reclaiming