Stop Press:

BBC2's Money Programme (12/12/06) investigated the banks' scam of illegally charging "unauthorised overdraft" fees, etc, and revealed the following:

You can claim back all the penalty fees you've been charged over the past six years (the legal maximum period for reclaiming). You can also charge your bank interest on this. They may object at first, or offer only a partial refund, but eventually they will cave in, because:

• Under the "Unfair Terms in Consumer Contracts Regulations (1999)" penalty charges have to reflect administrative costs – profiting from them isn't allowed. The banks make an estimated £4.5 billion in profit from such charges each year.

• Penalty charges are often £30 or higher, but the cost of processing overdrafts, bounced cheques, etc, is estimated at between £2.50 and £4.50, depending on the amount of manual intervention. In 80% of cases there is no manual intervention.

Although your bank may initially threaten to defend itself in court against your refund claim, no bank has done so to date. This is because they know they have little chance of winning, and they are petrified of bad publicity. In practice, people determined to be refunded have been fully refunded (in some cases by thousands of pounds).

More details:
BBC's coverage >
Reclaiming your money >

Previous Stop Press:

Excessive late payment fees declared unlawful!

Several banks have reduced their "late payment fees" on credit cards following an investigation by the Office of Fair Trading (OFT), which found charges over £12 to be excessive. To quote the OFT press release:

"Credit card default charges have generally been set at a significantly higher level than is legally fair [...] this has led to unlawful penalty charges currently in excess of £300 million a year."

We've had several people reporting success with our letter (see right), but the OFT's finding will probably have the effect of legitimising fees upto £12, even though they state:

"A default charge is not fair simply because it is below £12. Setting a threshold for intervention is a pragmatic pro-consumer action that is designed to give the industry the opportunity to change its practice without litigation".

OFT press release >

See also our Idler article on debt and bank rip-offs >

Letter for getting banks (and credit card companies) to refund you

(Note: this was last updated in 2013, and may be out of date). The following letter can be used to send to banks or credit card companies which charge you dubious "fees" (eg "late payment fee", "unauthorised overdraft fee").

(Reword to fit your own circumstances)

Dear [bank or credit card company]

A fee was charged to my account on... [list the details].

Government and consumer watchdog organisations are increasingly frowning on the charging of such fees. I draw your attention to a front-page Times story (27/10/04) which quotes legal experts arguing that these charges "are legally unenforceable because they seek to punish the borrower rather than compensate the bank for any losses that they have suffered".

The Office of Fair Trading has also argued that banks may be breaching consumer contract law (which stipulates that penalty charges must reflect only the bank costs incurred).

It's difficult to see how you can incur an administrative cost of £__ from my late payment [or unauthorised overdraft, etc]. I'm inclined to believe the Consumer Association's claim that the charges have less to do with "covering costs" than with "gross profiteering".

I request that you refund me, and I suggest that you change your policy to avoid the possibility of breaching consumer law.

Yours sincerely,

Our experiences with bank "fees"

Many credit card companies will refund one "late payment fee" per year if you phone them and ask. More than that and you'll probably need the above letter.

In 2002, I was charged two "late payment fees" of £20 each by one credit card company (in both cases the amount outstanding on my account was tiny – around £10 – and I paid just a few days late). They refunded the first fee after I phoned, but refused to refund the second. Until, that is, I sent them a version of the above letter, in 2005. They then refunded me immediately and offered a grovelling apology.

A different bank charged me a "clearance fee" of £30 when I went overdrawn by £12 for just two days. Then, after I sent them a version of the above letter, they immediately offered to refund me – on condition that I sign a form confirming that I would take my complaint no further! They're scared that people will find out about their scam.