Bank charge reclaims can go back six years

Regulator's ruling that penalties above £12 are unfair opens way to flood of demands. Banks are facing a wave of claims for repayment of unfair penalties going back six years after the Office of Fair Trading ruled that all payments over £12 were unfair.

Lawyers and consumer groups said the OFT ruling was a green light for customers to claim back all credit card, bank overdraft, store card and mortgage penalties that exceeded £12.

Stephen Alexander, a partner at Class Law, the financial services solicitors, said the ruling would strengthen the hand of bank customers wanting to challenge the charges, which are estimated to total £1bn a year. Until now some individuals have succeeded in persuading courts that penalty charges are unfair, while others have not.

"Now the OFT has decided that anything over £12 is unfair, it will be a lot easier for people to succeed against the banks in the Small Claims Court," Alexander said. "People are entitled to claim back charges made within the past six years."

Bank penalty charges regularly exceed £30, with Halifax charging the highest fees - £39 for unpaid cheques, direct debits and standing orders.

Which?, the consumer pressure group, is widening the campaign it launched in the Sunday Telegraph last week to get the public to fight back against unfair charges.

The campaign, which includes a website containing draft letters to help individuals mount their own court claims, has been extended to include penalties levied for late credit card payments and unauthorised borrowing. The website shows individuals how to apply for a list of all charges incurred in the past six years under the Data Protection Act for a £10 fee.

Emma Bandey, a campaigner at Which?, said: "We are urging people to claim back what they should never have been charged in the first place. The OFT has agreed with us that these charges are unfair and we think people should be empowered to do all they can to get their money back from banks that have posted billions of pounds in profits this year."

Analysts at Credit Suisse have assessed the cost of complying with the OFT's ruling at £1 billion a year. Banks have until May 31 to respond to the ruling but the OFT says it will take the matter to court if charges are not reduced across the board by then. Banks say they are considering their position but are expected to comply with the OFT's ruling for at least some charges.

The OFT said charges should be used only to recover administrative costs. John Fingleton, the OFT's chief executive, said: "We expect credit card issuers to adjust their default levels quickly. We have not ruled out future legal action if the market does not respond positively."

The British Bankers' Association has questioned why the OFT extended its ruling to include bank overdrafts, store cards and mortgage penalties when the original investigation was restricted only to credit cards.

Joanna Elson, a director of the BBA, said: "We are surprised that the OFT has widened the scope of its ruling when it only spoke to credit card providers. We expect our members to challenge this. We believe our banks' products provide good value."

Industry experts have predicted that the banks could threaten to withdraw free banking and free credit cards if the ruling is upheld across all areas of retail banking. The OFT says it will be on the lookout for increases in charges in other parts of banks' businesses.