How to claim back unfair overdraft fees – and you could be owed £100s
THOUSANDS of bank customers may be able to claim back unfair overdraft charges if they can prove that the fees pushed them further into debt.
Independent complaints service Resolver dealt with 3,832 interests and charges cases last year - almost eight times as many problems as any other overdraft issues.
Lenders currently charge between £2 to £30 a month for an arranged overdraft, while an unarranged fees can be much higher - up to £6 a day or £80 a month, which can add up to hundreds of pounds.
From April 6, new regulations banning these fees come into force, which will cut the cost of borrowing £100 from an unarranged overdraft from around £5 a day to less than 20p a day.
The shake up by the regulator is an attempt to make the cost of borrowing more transparent benefiting 18.2million customers, but critics have warned that it will leave 8million people worse off
If you've already been hit by these excessive charges and been pushed further into debt as a result, you may be able to get a refund from your bank.
While there are no rules that guarantee this, watchdog guidelines state that banks have a responsibility to treat you fairly.
HOW ONE MAN WON BACK £2,500 FROM HIS BANK
Getting into debt can leave you in a really sticky spot, as lorry driver Leon Ray found out.
After taking out a £3,100 overdraft with the Bank of Scotland he was left struggling to repay overdraft charges of up to almost £1,682 a year
Banks are meant to look out for vulnerable customers. But the 29-year-old was able to easily increase his hefty overdraft at the same time as spending thousands on online gambling sites in the midst of a gambling addiction
After The Sun got in touch, the bank offered Leon a £2,516 refund in overdraft fees as a gesture of goodwill
Bank of Scotland told The Sun at the time he increased the overdraft he met all of their lending criteria, but they recognised some people’s circumstances did change and wanted to help
If you are struggling with a money issue, then The Sun Money team might be able to help. Get in touch by emailing money@the-sun.co.uk
Christopher Woolard, from the Financial Conduct Authority (FCA), said: "We have made it clear that firms have to treat all customers who are affected by changes to their charging structures fairly.
"In particular, firms must identify customers adversely impacted and take steps to support them if they’re in difficulty."
Figures from the Financial Ombudsman show that 26 per cent of complaints regarding to overdrafts and loans were upheld last year, meaning that even though it's not certain that your money will be returned, it's worth a shot.
1. The bank charges have caused you financial hardship
Lenders have a responsibility to treat you fairly if you're struggling financially to stop you from being pushed further into debt.
So if you're in financial hardship, it should be doing all it can to help you get back on your feet rather than making the situation worse.
According to the FCA, you're considered to be in financial hardship if:
- You're regularly failing to pay the even the minimum repayments on any borrowed cash,
- You have damaging marks on your credit file, such as for defaulted payments,
- Most of your income is going towards paying off the debt and you may have had to take out a loan to help pay for them,
- You've taken out a Debt Management Plan (DMP) or other debt solution such as an Independent Voluntary Agreement (IVA),
- You've been talking to a firm, such as a provider or charity, about taking out a debt management plan or how to get help.
It's not likely to be enough that you only tick one of these boxes - you'll need to meet a few of them for your complaint to be upheld.
You'll also need to be able to back up each point with proof, such as letters and statements.
2. You asked for help from your bank but they didn't offer you anything
If you were struggling to keep up with repayments and asked your bank for help and it didn't offer you anything, then any subsequent charges may be unfair.
Reasons for not keeping up with the repayments include mental health problems, you'd just lost your job or were on maternity leave.
The bank should have realised that you're in a vulnerable position and offered help.
You will need to provide proof that you spoke to your bank, what you told them and that they didn't help you.
3. Your bank increased your limit to an unafforable level
You may also be able to argue that you were unfairly lent to if your bank upped your overdraft without you asking it to and you ended up with charges that you can't keep up with.
Sara said: "I suggest you apply "the man down the pub" test. Imagine describing your situation to a stranger down the pub and you told them that your bank had raised your credit limit to £8,000 and you also tell them what you earned.
"If the other person is going look astonished, that's a good complaint.
"If you have to spend a while explaining your situation and they look sympathetic rather than shocked at how your debt got too large, then your case may not be so good."
How much can I claim back?
There is no set limit for the amount of unfair overdraft fees that you can claim back, as long as you can prove that you were in financial hardship when you were charged them.
Typically, these range from between £2 to £30 a month for an arranged overdraft, while unarranged fees can be much higher - up to £6 a day or £80 a month.
There's no set limit for what you can claim for, so these fees can easily add up to hundreds of pounds.
Figures from the FCA suggest that only 1.5 per cent of customers are hit with these charges, but the majority end up forking out about £450 a year on them.
How do I reclaim the charges?
Firstly, you'll need to work out how much you've been charged in overdraft fees when you felt they were unaffordable.
This doesn't included monthly charges for packaged bank accounts, like a premium current account.
You need to make sure that you have all of the paperwork to back up what you're saying, including bank statements.
If you can't do that, the banks are legally obliged to give you copies under the Data Protection Act if you ask for them but they also have the right to charge up to £10 per statement.
It's important to be precise in what you need to avoid multiple charges, so ask for a list of charges, rather than for your statements to minimise the costs.
Once you have all of this information, you'll need to then write to your bank to tell them how the charges affected you and worsened your financial situation.
The bank then has eight weeks to look at your case and get back to you.
Should I use a claims management company?
When you search online for how to reclaim overdraft charges, many of the results are from claims management companies.
These firms will submit the claim on your behalf but you'll be charged a hefty fee for their services.
You should avoid these firms if you can or else their charges could end up making your finances worse.
Besides, you can do it yourself for free following this guide.
What can I do if I disagree with the bank's decision?
You may be offered a full refund of the charges, a partial refund or all of your money back but the bank says they must be used to pay off your debt.
You might be asked to fill in a financial statement form to prove that you meet the financial hardship criteria, or your bank may offer to stop any further charges instead of refunding you ones that you've already paid for.
"Typically, it's hard to make a successful claim by quoting financial hardship," said Sara, "and the other types of complaints are only just starting to be made so it's not clear how likely you are to win your case."
First of all, let them know that you're not happy with the results and give them a chance to offer you an alternative.
If they won't budget and you disagree with the outcome, you can complain to the Financial Ombudsman.
You need to get in touch within six weeks of receiving the final response from the bank, letting them know your name, address, what the problem is and how you want things to be put right.
You should also include any details that will help them investigate, such as the policy number, account number or customer or case reference number.
It usually takes around four months for the ombudsman to make a decision, although it can take longer or less time depending on how busy it is.
The ombudsman's decision is final but if you still don't agree with the outcome you can take the bank to court.
But it's worth noting before you go to the ombudsmen that you won't be likely to win if you accept the bank's offer and then submit a complaint.
Even though the fees will be banned, customers will still have to pay an annual interest rate on the amount that they borrow, similar to other types of loans.
Firms also won't be able to charge more for unauthorised overdraft fees compared to arranged ones.
In response to the new regulations, lenders have hiked rates to up to 49.9 per cent for anyone who goes into their overdrafts.
Around 26milion people are in their overdraft, according the Financial Conduct Authority, and critics argue that the poor will be hit the hardest.