Page last updated at 10:03 GMT, Friday, 23 October 2009 11:03 UK

Banks rapped over hardship claims

Cash machine
Banks have been told to stop giving complainants the run around

Banks have been told by the Financial Ombudsman Service (FOS) to deal fairly with people who ask for the return of overdraft charges because of hardship.

Banks are supposed to consider such cases, even though all other refund claims are on hold pending the outcome of a long running legal test case.

Under Financial Services Authority (FSA) rules, banks are supposed to treat hardship claims sympathetically.

But the FOS says it has received many complaints that this is not happening.

'Feeling powerless'

The Ombudsman's letter to the banks spelt out its concerns.

"We see cases where it appears to us that the bank has not engaged properly with the consumer [or their representative] to gain a clear understanding of the consumer's financial position," it said.

"Where banks follow iterative or circular processes, consumers can be left feeling powerless to progress their complaints.

"This difficult situation is made worse by standard or generic statements [by any of the parties] which do not address the consumer's individual circumstances and may even be inaccurate," the FOS added.

In July, the campaign group Legal Beagles obtained figures from the FSA, using the Freedom of Information Act, showing that while 178,000 people had made hardship claims, since July 2007, only 53,000 had been accepted.

About 32,000 had been rejected and put on hold because the bank said there was not sufficient evidence of hardship, and 93,000 cases were still being assessed.

'Spurious' claims

The FOS has also written to claims management companies, who submit many claims on behalf of their clients, asking them to co-operate by ensuring they give banks the necessary information to judge if their clients are in genuine financial hardship or not.

The FSA should be investigating the fact banks are happy to play fast and loose with its rules
Martin Lewis,

The banks said that many claims for hardship, channelled through these claims-handling firms, were turning out to be "spurious".

"The letters [from the FOS to banks and claims management firms] were in fact issued together, in response to claims handlers burdening the banks and the Ombudsman with spurious claims which simply slow down the process for legitimate claimants," said the British Bankers' Association (BBA).

"It is also a condition of the case on fees for unarranged overdrafts that banks process claims for those in financial hardship.

"The banks believe they are satisfying this condition - and the regulators are monitoring this closely," it added.

Martin Lewis of the campaign website said the letter from the FOS was "great news".

"We've seen a raft of complaints about banks replying with generic letters, playing run around, using delaying tactics and ignoring people in dire need," he said.

"The FSA should be investigating the fact banks are happy to play fast and loose with its rules, fine them for doing so and monitor how they operate, or stop the waiver altogether," he added.

'Sympathetic and positive'

Under the rules, financial hardship is defined as not having enough money to pay for reasonable day-to-day expenses and other usual outgoings.

If someone claims they are in financial difficulty this does not mean they can automatically expect their claim for the refund of past overdraft charges to be accepted.

But the claim must be dealt with using a "sympathetic and positive approach", said the FOS.

After that, it said, there could be various outcomes:

• a review of existing authorised credit facility limits to avoid recurrent charges

• suspension of interest or charges

• debt reduction

• refund of interest or charges

• or re-scheduling unauthorised current account debt to allow continued use of the bank account.

In July, about 1,126,000 ordinary refund claims were on hold, either with the banks or the FOS itself.

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