Lib Dem leader Nick Clegg has pledged legislation on bank charges to back the MSE campaign to ensure everyone who's had an unfair charge will get their money back without having to ask.
This radical move is the first time politicians have got directly involved in the campaign to reclaim bank charges. It's an unprecedented step, potentially meaning a guaranteed payout to millions of people, totalling over five billion pounds.
It came about in an unusual way. Clegg (pictured, right) is one of the 3.5 million recipients of the MoneySavingExpert.com (MSE) weekly money tips email. In it, three weeks ago, he spotted an open letter to David Cameron where MSE asked the Tory leader to back the campaign for automatic refunds.
While Cameron has not replied, Clegg, and his Shadow Chancellor Vince Cable, in a letter to MSE this week (see full text below), have promised to table a Parliamentary motion after the summer recess.
That motion will require banks and building societies to automatically compensate charges victims if and when "scandalous" fees are adjudged unfair.
Currently, a landmark test case on fees is now at the House of Lords, with a decision expected in autumn. It'll decide whether fairness rules apply to the charges of up to £35 a time for going beyond your overdraft limit.
The banks, arguing fairness rules do not apply, have already lost in the High Court and the Court of Appeal.
Martin Lewis, creator of MoneySavingExpert.com, from where 6.2 million free bank charges reclaiming template letters have been downloaded (see the Bank Charges guide), 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.
"That in itself is a surprise as it's been the biggest consumer revolution since the Poll Tax riots.
"Yet, finally, one party has had the balls to take a stance, and it's an unexpectedly brave one, pushing reclaiming to the max. Now it's up to Messrs Brown and Cameron to respond.
"It's about time the major political parties told us their stance. I want them to agree to automatic pay-outs, but at the very least, I want to know if they reject the idea."
Nick Clegg's full email to Martin Lewis
As a subscriber to your weekly email, I saw your recent comments on unfair banking charges. I couldn't agree more with you about the scandalous nature of these charges.
The Liberal Democrats have taken a strong stance on this for a long time - in particular, in our manifesto for complete reform of Britain's banking and financial institutions "A New Deal for the City", launched in May 2008 where we stated:
"The treatment of charges by the banks borders on the scandalous. It is a continuation of the practice described above: a protected industry seeking to maximise profits by exploiting the weakness of individual consumers who lack information and sophisticated knowledge of products or legal advice. The principle should be established that bank charges must be transparent and cost based."
In your email, you made a further suggestion that banks should have to pay back all unfair charges automatically if the courts do rule against them. This struck me as an extremely good idea that we should do all we can to put in place. Vince Cable, my shadow Chancellor, and I would be delighted to support your campaign.
We will put a motion before Parliament setting out our support for your idea as soon as the recess is over, which will hopefully put pressure on the government and the banks to act to return the money they so unfairly took from customers.
Finally, I'm really looking forward to receiving the manifesto you've been compiling on your site regarding other consumer issues. And I'm pleased to be able to let you know we will be having a debate on consumer protection at our conference in the autumn, where we hope to adopt some strong new policies for our manifesto.
All the best,
Commenting on the letter, Martin says: "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. It's the main reason I think Nick Clegg and the Lib Dems need applauding for this stance.
"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 (which sparked the Lib Dems into action)
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.
Martin Lewis, www.moneysavingexpert.com
Bank charges reclaiming has been on hold for over two years for most, pending the result of the test case. 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 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).
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 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."