Today, a High Court judge ruled that bank charges ‘can be unfair under UK law’. This has come about because over the last couple of years lots of us have been demanding that banks refunded our bank charges. You know the kind of thing, £30 for an unauthorised overdraft, another £30 for the letter TELLING you you have an unauthorised overdraft.

People were getting increasingly fed up with these brutal charges. Last year, customers started to reclaim millions of pounds of charges through the courts. Ad hoc basis, some courts ruling one way, some another. So OFT, 7 High St banks and a Building Soc sought clarification through High court. And while that case has continued, further refunds have been put on ice.

The way people were getting their money back was by claiming that the charges were unfair or ‘penal’. The banks argued in court that the charges weren’t penal (ie penalties) but were just fees.

Now the Judge, Mr Andrew Smith has actually agreed with the banks up to a point. He said that these charges are not, by definition unfair - so banks ARE allowed to levy charges. BUT THE INTERESTING BIT FOR BANK CUSTOMERS is that his ruling DOES shatter banks’ argument that the charges were exempt under a 1999 law, called the Unfair Terms in Consumer Contracts Regulations (UTCCR). tHE OFFICE OF FAIR TRADING (THE OFT) won ruling in High Court that BANK charges come under ‘unfair contract’ rules, designed to protect customers.

HOW MUCH ARE WE TALKING ABOUT?!
OD charges worth 3.5bn a year to banks. £500m already paid back, but on hold while the test case proceeded. STILL on hold as just preliminary ruling. HSBC has said the ruling could cost £303m, but I’ve read other analysts predicting £1.1bn.

What next?
The next hearing is 22 may 2008, and next stage is for the Courts to decide a fair amount for charges … if you’ve written to your bank and are awaiting an answer, it’s still on hold to then.

REMEMBER!!!
This is about reclaiming bank charges, NOT credit card or any other fees.

WHAT TO DO?
In short, you HAVE to claim on an individual basis … ie write a letter. Even though NOTHING will be actioned by the banks till 22 May, you still want to get a dated letter off to your bank if you think you do have a claim, because claims only go back six years in England and Wales and, I’m sorry to say, only five years in Scotland!

It’s not all good. Many customers whose accounts stay in credit would argue that that they’re being rewarded for prudence. If there is no charge for going overdrawn (customers might call it a penalty but the bankers would just call it a fee) then there’s no reward for running your account well. The banks would also argue that SOMEONE has to pay … though that’s a tough one to swallow if you’ve just been charged £30 for being £5 overdrawn for 3 days.

SO DOES IT SPELL THE END for free banking? There is an argument that the banks are so competitive for cash just now that they WON’T start levying charges for fear of scaring customers away. But if they have A black hole of UP TO £1BN they have to fill it from somewhere. My hunch is free banking is on the way out. Get your letter off to the banks now. I’ll have more on this story as it develops, and we’ll be posting some links on how to claim.

And if you are suffering with your finances just now, check out Financial tips of the week: adverse credit problems UK for advice on how to start repairing the damage.

As widely expected, the Bank of England cut base rates to 5% today but it was cold comfort to lots of us with mortgages, as lenders continued to withdraw fixed rate loans, raise the interest rate on the same or attach hefty arrangement fees to new mortgages. We’ve seen a succession of Bank of England interest rate cuts over the past few months. Once upon a time attention was immediately turned to the mortgage lenders to see which of them would pass on the savings to their customers, and which of them would simply pocket the difference. No more. I read today that the ‘connection between base rate and mortgage rates has softened considerably’, for which piece of mealy-mouthed euphemistic jargon mean ‘they’re charging us more for cheaper money’.

Perhaps one shouldn’t pick on a single institution when they’re all at it, but the Nationwide’s timing was particularly unfortunate.  The institution that now dubs itself Britain’s biggest building society (because all the bigger ones turned themselves into banks in order to play at making ‘real’ money during the 1990s) announced just hours before the Bank’s announcement that its fixed rates would rise 0.32%. Its 5.83% five-year fix at a £499 fee for those with a 25% deposit, has now become 6.15% with a £699 fee.

As ever, the cruel irony is that the less attractive the borrower (for which read ‘poorer’) the higher interest they will pay.  It’s not just about ’sub prime’ borrowers who really shouldn’t have been told ‘yes you can afford to buy a house’ when they palpably couldn’t. Many thousands of buyers who stretched that just little bit further to get onto the UK property ladder, and who could just about afford their monthly mortgage payments, are now about to get their fingers prised from the rungs.