Is Your Bank Overcharging You For Your Overdraft?

Unauthorised overdraft fees. These are three words that worry every bank customer. An unauthorised overdraft fee is the fee charged by a bank when customers go over their overdraft limit.

These fees can be very steep, with some banks charging high premiums for customers who exceed an agreed overdraft limit by as little as a few pence. A recent consumer report suggests that bank customers paid more than ?4 billion pounds in unauthorised overdraft fees in 2004.

Scale Of Overdraft Fees

The BBC have reported that the seven major banks charge unauthorised overdraft fees of ?25 to ?38 pounds. Interest rates on the unauthorised amount can also be high. While some banks charge under 8% interest, others have interest rates that hover around the 30% level.

The banking industry has been slated for this practice by customers who feel they have been treated unfairly. The Office For Fair Trading has also criticised banks for overcharging customers for unauthorised overdrafts. Late payment fees for credit cards have also been criticised. The OFT suggests that late payment fees for credit cards should be no more than ?12 and should only cover the administration fee.

Getting A Refund

Consumers who feel they have been overcharged by their banks may be able to receive a refund if they go through a time consuming process.

First of all, consumers can use the Data Protection Act to request details of all charges on their account over the past six years. Next, they need to inform the bank that they intend to sue in County Court to get this money refunded.

Are Unauthorised Overdraft Fees Legal?

There is some question as to the legality of unauthorised overdraft charges. Penalty clauses (such as unauthorised overdraft charges) are illegal under breach of contract law. However, banks do have the right to claim damages from customers who breach their contract with the bank. To avoid going to court every time, most banks write these charges into the contract. They are then able to raise those charges at regular intervals.

The banks see the unauthorised overdraft fee as a fee for services rather than a penalty. This could alter the legal position.

In many cases, it is the people who can least afford it who suffer these overdraft charges. This can become a cycle, with some people having to pay unauthorised overdraft fees month after month.

Help With Your Banking Rights

Consumers who want to find out more about their banking rights should check information from the Bank Action Group, a self-help organisation for banking customers. This organisation can guide consumers through the lengthy process of recovering unauthorised overdraft fees from their bank.

Many organisations say that the banks should make it easier for consumers to see what charges might be applied to their bank accounts. Until they do, consumers should read the fine print as the terms and conditions of each bank account contain information about charge that might apply. Finally, when banks send variations of terms, it is useful to read these to see what new conditions might apply.

Joe Kenny writes for the UK personal finance sites http://www.ukpersonalloanstore.co.uk and also http://www.cardguide.co.uk