MoneySavingExpert.com creator Martin Lewis, the man credited as the 'big gob in chief' behind bank charges reclaiming, says a new court ruling has a chance of reopening the floodgates.
Oliver Foster-Burnell, a 28-year-old customer of what was formerly Lloyds TSB, took his £743 overdraft charges reclaim to court – with free help from solicitors' firm Howlett Clarke and barrister Tom Brennan, and with support from forum LegalBeagles – and won.
The legal experts were testing the law after a 2012 European Court of Justice decision, which was about telecoms. For a full write up of what happened, see the 'First' bank charges court win since 2007 MSE News story.
MoneySavingExpert.com has been at the forefront of helping people reclaim bank charges for years, so we asked our editor-in-chief and creator Martin Lewis for his interpretation of this ruling.
Q. Before we start, for people who don't know the history, can you tell us where we are with bank charges reclaiming?
Martin: Until 2009, people received over £1bn worth of bank charges back – six million of MoneySavingExpert.com's template letters alone were downloaded.
But after a High Court and Court of Appeal victory in the Office of Fair Trading's (OFT) case against the banks, the subsequent loss at the Supreme Court was a devastating shock. Worse still, it was on a technicality.
It's important to understand the Supreme Court didn't say bank charges were fair, in fact the judgment hinted quite deliberately towards the fact that bank charges weren't fair, but that under the particular law they were using, they didn't have to be fair as they were part of the product's price.
In other words, in the same way that if I want to sell you a can of cola, I can choose to sell it to you for 10p, or £10,000 – there is no fairness rule that stops me.
I don't believe this is correct (and neither did the High Court or the Court of Appeal), as when you look at banks' marketing and brochures they do not advertise themselves or promise themselves on the basis of what their bank charges are – so it is an ancillary charge and not part of the core price, therefore it should need to be fair.
After the loss in court, I hired a QC who found other laws which allowed fairness challenges, but the OFT wouldn't take up the cudgels again because it didn't believe it was in the public interest. In other words, it got burnt and didn't want its reputation to be at risk by taking the case back to court.
Q. So what does this latest court ruling mean for mainstream reclaiming?
Martin: Even after the Supreme Court judgment people have still been able to reclaim, usually via the Financial Ombudsman Service, if the charges were a substantial contributing factor to financial hardship (see our Bank Charges guide for more).
And indeed Oliver's case was a hardship claim too, but what's important here is that the ruling could be used in a wider context than just hardship.
The judge said that as Oliver's contract allowed the bank to vary charges without explaining by how much (as we suspect other banks do too), the charges needed to be fair. In Oliver's case they weren't, as they caused him to get into a cycle of debt. This decision was based on a European Court of Justice ruling (that related to telecoms, but can be read across).
There is no reason that this should only apply to those in severe hardship and not to those who were simply inconvenienced, or for those that just faced difficulties because of charges. If it has to be fair, then it should be fair for everyone.
It's important to understand though, that as it was a county court judgment, it doesn't set a legal precedent (which is when other courts need to follow it). But even though Oliver and his team won, they have now bravely and admirably asked to appeal this decision to help others.
Their aim is to take the case to the Court of Appeal where the outcome will set a precedent on all county courts in England and Wales. We will of course update you of any news in our weekly email.
Yet even though it's only a county court judgment, it has at least broken down the barrier that bank charges cases can't be heard in court, and if ultimately it did set a precedent (and the right one), it could reopen the bank charges reclaiming doors for millions.
Q. I've had bank charges. Should I try and use this to claim?
Martin: Not yet. And that is a very deliberate answer. This new ruling is the door having gone from being slammed shut, to someone just putting their foot in it. It is not fully open yet. What we have to do now is look at what happens with Oliver and his case going forward.
However, if you've had bank charges in the last six years and they've contributed to severe financial hardship, you can reclaim from the Financial Ombudsman now. See our Free Bank Charges Reclaiming guide for how to do this, including free template letters.
I regularly hear of people successfully getting their money back from an Ombudsman ruling. But you may just want to think twice about going to court. I think we should let Oliver's case play out first and hopefully it will set a precedent.
Q. Why are bank charges such a big deal?
Martin: The problem with bank charges is they're designed to entrap. I first wrote about bank charges reclaiming in 2005. Back then, you went £2 over your authorised limit and you'd be hit with an up to £35 transaction fee.
Many who went a little over their limit got charges on charges, which soon snowballed into inescapable £1,000s. Banks made over £2.5bn/year from this.
There was a classic case of woman who had written a cheque seven weeks earlier to a friend. That friend didn't cash it at the time, but when they did later on, it pushed the woman beyond her overdraft limit. Unbeknown to the woman, she went out shopping that morning and bought seven items on her debit card totalling £40ish.
For each of those seven items, she got a £35 transaction charge. That's £245 for £40 worth of shopping – she never recovered. A year later she was £2,000-£3,000 in debt because of charges on charges. That is entrapment.
Bank charges are also disproportional to the amount it costs banks to levy them and effectively what we have always had, is a cross-subsidy from the poorest in society to the richest in society.
Q. Are you and MoneySavingExpert.com going to get involved this time round, Martin?
Martin: Yes. Oliver and his solicitor have done a brilliant job of lighting the fire under this issue and I want us to help blow some air on it to make the flames bigger in the hope of finding financial justice for those who've been burnt by this (OK, I accept I probably stretched an analogy too far there!)
I've already spoken to people at the Financial Conduct Authority (FCA) to try and persuade it to take up the cudgels on this – and hope to push more.
After all, if the law says bank charges must be fair, then the regulator should be enforcing it.
Q. But haven't charges improved?
Martin: They have got better. Many banks have now shifted to £5-£10/day charges, which, while still horrible, are much better than the hideous per transaction charges of the not-so-distant past.
Yet opening the doors to reclaiming isn't just about current charges, it's about seeking justice for those who've had them unfairly applied in the past.
Listen to Martin, Oliver and Kate Briscoe from Howlett Clarke discussing this issue on Radio 5's Consumer Panel with Martin Lewis podcast.