The UK banking system is creaking under the strain. Thousands of angry customers are reclaiming all charges levied on them by the banks over the last 6 years. This all follows a court case in early 2006 when a customer took a bank to court to reclaim these penalty bank charges. The bank did not defend the case in court and the court ordered the bank to pay him back all the charges. The story quickly spread and has mushroomed into a media frenzy on the subject, as thousands of customers join the revolt.



The mass media coverage has also led to The Office of Fair Trading (OFT) starting an investigation into the level of bank charges. In April 2006 the OFT ordered companies operating credit cards to reduce their charges for late payments and over limit fees to a maximum of ?12.

Last year's court case against the banks was taken by a solicitor. He claimed that the high charges levied by the bank constituted a financial penalty which is unlawful in the UK for non-negotiated contracts. This relates to a 1915 law. The terms and conditions of an account form a non-negotiated contract. Under the law, banks are only allowed to reclaim their actual financial loss in relation to a breach of contract. This means if a customer goes into an overdraft situation, and the banks send out a computer generated letter, they are only allowed to claim the cost of producing and posting this letter. Banks generally charge ?28-?40 for such breaches. They often apply this same charge every day that someone remains overdrawn and for every cheque and direct debit they do not pay during this same period. These charges are widely thought to be disproportionate to the bank's actual cost of managing the overdraft, and therefore represent a penalty which is unlawful.

UK law allows a claim through the courts for all monies owed to them for a period of six years. Although the banks have defended their charges to the media, they have not contested a case in court. This is because they would have to clearly demonstrate in court the actual financial loss incurred for each charge they apply. If a case was found against them, they would be forced to repay all charges to all customers for the past 6 years. It would also destroy their fee charging structures, which is thought to be no more than a profit generating mechanism. Last year these penalty charges netted the banks ?4.5bn in profits. Rather than risk this in law, the banks have been repaying customers who complain, without admitting liability.

However, the banks aren't simply refunding everyone. They wait until court proceedings have been issued against them by a customer before paying, in the hope that many will not see the 'procedure' through and drop their claims. In the meantime, and until they either try to defend a court action and lose, or the OFT force them to reduce their charges, they continue to levy them on the most financially vulnerable people who are already finding it difficult to manage their money.