Now banks face legal action over those penalty charges

Now banks face legal action over those penalty charges

The OFT said the current level of charges for late payment of credit card bills - typically £20-£25 - are excessive and that in future customers can be charged only for the actual cost of processing late payments, such as postage and stationery.

It also ruled that penalty charges are illegal, as they breach the 1999 Unfair Terms in Consumer Contracts Regulations, and said it will take action against companies which exceed the £12 charge.

But the big surprise was that the OFT inquiry, which had centred on credit cards, concluded that the same principles should apply to overdrafts, bounced cheques and mortgage fees.

Consumer groups were jubilant at the OFT's new get-tough approach to charges. Which? (formerly the Consumers' Association) said: "It is now the turn of current account providers to do the decent thing and act immediately on unauthorised overdraft charges."

But other campaigners are not waiting to see if the banks will comply. Stephen Hone, 29, a law student from Plymouth, Devon, is pressing ahead with a case against eight banks, due to be heard by a county court next week.

He says the OFT ruling does not go far enough and wants a declaration from the courts that the banks' imposition of penalty charges.....continued below

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He says: "This is just a small advance. I reckon the banks will make a fuss about it but accept the £12 level which they will be able to claim is sanctioned by the Office of Fair Trading. At £12, they will still be making a billion or so.

"There was nothing in the statement about reclaiming charges incurred over the years or any remedy for the default notices on credit reports which are caused by the penalties. All the OFT has done is to put a price that the banks can live with.

"And it's really not clear if the £12 is per month, per day or per item. There's no certainty here. At Bank Action Group, we are still going to tell people to take legal action against the banks for recovery of unfair penalties which are higher than the real cost of bouncing a cheque is to the banks.

"The OFT says the 'courts may find £12 unfair' but I think it is the OFT's duty to suggest a limit that the courts can live with. A fiver would be acceptable."

Mr Hone is a key figure behind bankactiongroup.co.uk, one of a number of groups and forums that have sprung up to assist individuals in taking legal action against banks to recover charges. The other leading group is bankchargeshell.co.uk, run by Bob Egerton from Truro in Cornwall.

Over the past year, he says that members of the group have successfully recovered tens of thousands of pounds from banks by issuing county court claims based on common law rules regarding contractual terms and the Unfair Terms in Consumer Contracts Regulations 1999.