Inside Money: Beating The Charges
 
Presenter: Lesley Curwen
Producer:  Jessica Laugharne

Tx: 	Saturday 26 August 2006 1204


CURWEN:	Hello.  Welcome to Inside Money, which this 
week is about the fairness and legality of bank charges.  It’s a 
contentious issue.  Bank customers are being encouraged by consumer 
groups to revolt.  Growing numbers are refusing to pay default charges, 
which are imposed when you go overdrawn without permission or 
when direct debits or cheques are bounced.  These customers argue the 
charges are excessive and unlawful, and some of them have taken their 
bank or building society to court to claw back charges they’ve paid in 
previous years.  Well the banks don’t accept the allegations against 
them, but they have often repaid charges when challenged: hundreds or 
even thousands of pounds to some individuals.  One customer who got 
his money back is Radio 4 listener Craig Walton.

WALTON:	I took my bank to court because the obscene 
amount they’re making from charges, it’s not right, and it’s about time 
people stood up to the banks.

CURWEN:	We’ll be hearing more from Craig later on. But 
what about the other side of the argument?  The banks strenuously deny 
that their fees are excessive.  They say that they reflect the 
administration costs involved and you can avoid them simply by 
keeping your account in order.  So why have they agreed to waive 
charges or refund them at the eleventh hour before going to court?  Is it 
to avoid a definitive judgement?  Ginny Broad from Alliance & 
Leicester explained why to Money Box earlier this year.

BROAD:	We believe that our charges are both reasonable 
and lawful, but that the cost of fighting the court case, of having the 
litigation and so forth individually is not worthwhile.  We can’t recover 
our costs from the courts, so currently we’re not defending these.

CURWEN:	One reason why this is such a hot issue is that 
the Office of Fair Trading has already moved to curb charges imposed 
by credit card providers and there’s speculation it might eventually do 
the same with the banks.  Even if you’ve never been overdrawn in your 
life, this story could affect you because if the banks are forced to reduce 
their default charges some experts suggest they might react by ending 
free banking for everyone.  So what sort of charges are we talking about 
for going over your borrowing limit?  Often it’s £20 to £30 or more and 
interest charges can rise for unauthorised amounts perhaps to as high as 
30%, so the debt quickly grows even bigger.  The consumer group 
Which? has campaigned to cut fees like this.  It estimates that charges 
for unauthorised overdrafts amounted to £4.7 billion in the last year.  At 
the heart of the whole debate is what the law has to say on the subject 
and what it actually means.  I asked Ingrid Gubbay, the Principal 
Campaigns Lawyer at Which? for her view on the law.

GUBBAY:	There are two lines of law.  One comes under 
the common law and the common law says in the UK that any charge 
for breach of contract which is excessive is a penalty, and that means 
that if the bank is charging more than it costs to send out a letter to tell 
you that you’ve gone into your unauthorised overdraft, then it’s clearly 
excessive and therefore it’s unlawful.  And the second part is the unfair 
terms in consumer contracts regulations, which says that a term is 
unfair when it causes a very big imbalance in the parties’ rights and it’s 
to the detriment of the consumer.  Now here we’re saying that there is a 
detriment to consumers when they have to pay disproportionately high 
sums of money back to the bank when they go into unauthorised 
overdraft.  That is they might be £1 or £2 over and they’re charged £25 
to £39 each time.

CURWEN:	Now you mentioned the term ‘penalty’.  Does 
that mean that you think the banks are basically issuing a slap on the 
wrist to customers?

GUBBAY:	That’s correct.  If they’re charging anything 
over and above their administrative costs of servicing the overdraft, 
then they are in fact giving you a slap over the wrist and that’s a 
deterrent, and they constantly say that the charge is to deter people from 
going over their authorised limits.

CURWEN:	But are they allowed to do that under the law?

GUBBAY:	Well that’s the question.  We would argue that 
anything above administrative costs is excessive and therefore is a 
penalty and is unlawful.

CURWEN:	But the banks would argue that the charges they 
make do reflect what it costs them.

GUBBAY:	Well the banks have never opened their books.  
We’ve challenged them constantly to open their books and tell us what 
it costs to service these overdrafts or these unauthorised charges, so no 
one really knows what it costs them at this stage.  The Office of Fair 
Trading did release a statement last April saying what these charges 
should be made up of if they’re to be fair and that was the cost of a 
letter that they issue, the cost of postage, perhaps spreading out the 
costs of the IT staff, but we’ve had absolutely no statement from the 
banks saying what these charges actually cover.

CURWEN:	Why do you think a case has yet to be heard in 
court about this?

GUBBAY:	From our experience at Which? where we have 
thousands of people downloading our template letters and a lot of 
feedback, we’re finding that banks are settling outside of the court.  We 
believe that is because no bank wants a precedent set by courts and I 
can only presume it’s because they feel that they’re not on very strong 
legal ground.

CURWEN:	Well that was Ingrid Gubbay from Which?  
Which? offers guidance and model letters on its website to encourage 
people to challenge their bank charges.  A number of other websites do 
the same.  But could this consumer revolt backfire if it does in the 
longer term bring an end to free banking?  I’ve been talking to two 
Radio 4 listeners who contacted us with their differing views on the 
subject of bank charges: from Sheffield, Craig Walton who you heard at 
the start of the programme - Craig has taken successful legal action to 
reclaim charges; and from Bristol, Nick Hawkes who does not feel it’s 
right to challenge them.  First I asked Craig to describe his experience.

WALTON:	A few years ago I started getting one or two 
bounced direct debits and cheques returned.  The banks were charging 
me.  It became a snowball effect.  When you live pretty close to the 
breadline, when you get charged two, three times a month - that’s about 
£100 – that taking a dent out of your wage becomes quite significant.  
And then you’ve got to find that money from somewhere, so you write 
more cheques and you get further and further into debt.  And I read a 
newspaper article about somebody who had taken his bank to court and 
I thought I could benefit from that, so I went on the Internet and found 
out how you can take your bank to court, followed the actions and 
submitted a claim in the county court.  And before it went to the county 
court, I received the full money from the bank.

CURWEN:	So how much did you get back?

WALTON:	£1,240.

CURWEN:	You had actually incurred charges, hadn’t you, 
because you had either had direct debits which weren’t paid because 
you didn’t have enough money in the account or cheques bounced, so 
you have to shoulder some of the blame, surely?

WALTON:	I can understand what you’re saying.  However, 
the obscene amount they’re making from charges, it’s not right, and it’s 
about time people stood up to the banks.

CURWEN:	Nick Hawkes in Bristol, you feel slightly 
differently about this because I understand you’ve incurred a charge in 
the past, but you decided not to try and challenge that.
HAWKES:	Yes.  I didn’t think about fighting the charge 
and, to be honest, even today I wouldn’t because it was my mistake at 
the end of the day and I was quite happy to accept the consequences.

CURWEN:	So you think the banks are within their rights to 
stick by the charges even if they’re quite steep?

HAWKES:	Yeah, I believe so.  I mean so long as it’s all 
been clearly set out within the terms and conditions that go with the 
account that everybody signs when they open an account, I don’t see 
any reason why they shouldn’t be able to charge this amount.  What I 
suppose I do disagree with a bit is it’s a flat rate for everyone.  Perhaps 
if you’re a kind of first time offender, it may be more reasonable to 
have some sort of sliding scale in place so that if you continually go 
over the limit of your account, you get punished more and more every 
time.  They are a business, they do have to make a profit, and this kind 
of action of people taking them to court is allowing people to abuse the 
service they offer, I feel.

CURWEN:	Craig, you are I suppose in some people’s terms 
a persistent offender.

WALTON:	Yes.

CURWEN:	How would you feel about what Nick said, 
about the banks dealing with people like you?

WALTON:	The banks have to make a profit, but the banks 
have to operate within the law.  Now it is quite clear in the law that if 
the contract is broken financially, then they are only allowed to claim 
costs involved in making good that contract.  Now £30, £35 - that is 
wrong.  That is not how much it costs them to bounce a direct debit.  
It’s not how much it costs them for you going over your overdraft limit.

CURWEN:	What do you think is a fair charge?

WALTON:	I would say a fair charge would be between £2, 
£3.  That’s from the work involved.  It’s the cost of the computer 
equipment, maintenance, the cost of sending a letter, and that would be 
it.

CURWEN:	Nick Hawkes, what do you reckon?

HAWKES:	If the law states that they should only be 
charging what it costs them to sort of administer the bounced direct 
debit or bounced cheque, whatever it is, then I suppose that’s fair 
enough, but I would argue that the law needs changing.  I’ve always 
lived my life, if I earn £100 in a month, then I’ll live off £100 in that 
month, and it’s just the way I’ve kind of been brought up and sort of 
taught to manage money, so that you can last.

CURWEN:	Craig Walton, what if the kind of action that 
you’ve taken and other people like you brings about the possible end of 
free banking for people who do stay out of the red?  Isn’t that unfair to 
all of us?

WALTON:	No because in the past historically our charges 
have been subsidising free banking, so we have been subsidising people 
who stay in credit and now we’re trying to get our money back.  It’s 
about time everybody started paying for themselves. Now I do 
appreciate that means that I’ll start having to pay for banking.  
However, I’ll be shopping around trying to find the best deal.

HAWKES:	I would disagree with the view that these 
charges are subsidising people who stay within their credit limits.  The 
banks take your money, they then invest it in whatever markets they 
want to and they make profit off that, which is fine, I’m happy enough 
for them to do that, and I don’t see why I should pay any more just 
because there’s a minority of people that are claiming these charges 
back in my opinion unfairly.

WALTON:	When the charges are set at a proper rate, I will 
be perfectly happy to pay those charges and I’ll also be perfectly happy 
to pay for banking should free banking come to an end, but what I’m 
not prepared to do is pay through the nose for charges when I shouldn’t 
have to.
CURWEN:	So you will try to challenge any future charges 
that are made against you? 

WALTON:	Oh yes, quite definitely.

CURWEN:	Two very different views there.  Thanks to 
Craig Walton and Nick Hawkes.  Well it was in April this year that the 
Office of Fair Trading told the credit card companies to effectively cut 
in half the fees they charge when customers miss a monthly repayment 
or breach their borrowing limits, and this of course raised some 
expectations that the OFT might do the same thing with the banks if it 
decides to launch an investigation into bank charges.  We’ve been told 
an announcement on that will be made by the OFT in due course.  The 
question is are the charges levied by the banks and the building 
societies fair or are they disproportionate?  Well we did ask the five 
biggest banks in the UK to appear in our studio debate, but they turned 
us down.  However, I’m joined by Joanna Elson who’s the Executive 
Director of the industry body the British Bankers’ Association, by 
banking expert Phil Middleton from Ernst and Young and by Bob 
Egerton, one of the founders of Bank Charges Hell, a campaigning 
website which helps consumers who try to reclaim their charges.  Hello 
to all of you.

EVERYONE:	Hello … hi.

CURWEN:	Are these costs fair?  Are the charges fair?  
Joanna Elson?

ELSON:	The banks believe that the charges are fair, that 
they’re lawful and that they’re transparent; that it’s very easy for people 
to find out what the charges are, that it’s easy to avoid the charges by 
having an authorised overdraft, and that actually the charges reflect the 
work involved in making sure that that money is available – money that 
people haven’t arranged to borrow and that’s otherwise being used in 
other ways – you know to support people’s mortgages or to help small 
businesses or whatever it is.  So to make those funds available, there is 
a charge to the bank and the banks will tell you that the charge that they 
levy on customers to make that money available is reflective of the 
work involved.

CURWEN:	Bob Egerton?

EGERTON:	Well the problem is that the banks have 
developed over the last twenty years a ludicrous business model where 
they have a marketing slogan of free banking.  Free banking is like a 
free lunch – it doesn’t exist.  Somebody somewhere is paying for it.  In 
the case of bank accounts, what the banks are doing is they are 
extorting from 20% of their least well off customers such phenomenal 
sums of money in penalty charges that it more than recoups the money 
that it costs to run all of the accounts for the rest of us and they’re 
making phenomenal profits from it.  It is totally immoral as a business 
model.  It is also unlawful.

CURWEN:	Extorting and immoral …

EGERTON:	Yes.

CURWEN:	… those are very, very strong allegations.

EGERTON:	They are.  The banks know that the charges are 
unlawful.  The banks are desperately trying to avoid going to court to 
have it exposed because what they’re doing is unlawful.

CURWEN:	Joanna Elson?

ELSON:	Well let me just take on first of all the allegation 
about extortion and so on.  It’s a shame that we can’t actually have a 
conversation with Craig and Nick, but if I were able to what I would 
say to Craig would be actually perhaps he needs to talk to his bank 
about having a different kind of bank account – one where he can’t go 
overdrawn, a basic bank account – and that seems to me to be the route 
that customers need to take, to be talking to their banks.  If something 
goes wrong - which of us hasn’t at some stage or other accidentally 
gone overdrawn? – they need to talk to their bank; and if it’s a one-off, 
very often a bank will say well we’ll waive the charge because we want 
to keep our customers happy.

CURWEN:	But can I pull you back to the point that this is 
extortion, that the charges in themselves are too high?

ELSON:	Yes.  The banks, as I said earlier, believe that 
the charges are fair and lawful and they’re reflective of the work 
involved.

EGERTON:	But the banks are not prepared to go to the one 
place which would make a definitive ruling on whether it’s lawful or 
not and that is the courts of this land.  The banks are desperately 
avoiding it.  They will do everything.  I have personally represented 
nine people successfully.  I have eight other cases in Truro County 
Court at the moment.  I’m about to start another two next week.  I know 
I will win all of those.  There is no way the banks will go to the court.

ELSON:	I think there are two reasons for that, Bob, if I 
may say so.  One is a simple commercial business reason, which is that 
it costs the bank more to go to court than it does to settle.  And the 
second is that you’re quite right, they don’t want a judgement in court 
because any precedent that is set in a court will concentrate on the 
individual circumstances of that case and they would much rather that 
this discussion is had in open, that people can have the debate, they 
stand ready to talk to the OFT about it because clearly people do have a 
difference of view and that would seem a much better way to sort this 
out than to have the whim of a court in a particular case.

EGERTON:	I’m sorry, you say a whim of a court …

CURWEN:	Can I bring Phil Middleton in here?  Phil 
Middleton, as a banking analyst and somebody who knows the industry 
well, why do you think the banks don’t go to court?

MIDDLETON:	Oh I think for the reasons that have been 
outlined – that it is more expensive to fight the case than to settle - and I 
think they don’t wish to see a precedent.  But I think we’re right in the 
sense that the model that we have for current account banking generally 
in the UK is probably outmoded and needs a rethink and it probably 
needs a comprehensive rethink and not a piecemeal one.  I love this 
idea that we have in this country of the concept of an unauthorised 
overdraft.  In most countries of the world that is a criminal offence 
because it’s theft - in other words to write a cheque for funds that you 
do not have or which have not cleared in your account – and you can 
technically go to jail for it.  We have this supposed free banking model, 
which actually for most consumers is free banking and it is a very good 
deal compared with what most people get in Europe or the United 
States, for example.

EGERTON:	It is free banking for the most well off people in 
the country, but it is not free banking for the poorest people.

MIDDLETON:	It’s not necessarily for the most well off.  
Actually it is a very good deal for people who keep very low current 
account balances, but keep in credit but do an awful lot of transactions.

CURWEN:	Let me focus on this issue of whether it’s the 
well off or the poor who are suffering here.  Bob, I understand you’re 
particularly worried about how people on low income can be affected.

EGERTON:	Yes, most of the cases of people I’ve 
represented have been on benefits or working tax credits.  There’s not a 
single person that I’ve represented who earns more than £20,000 a year.  
The first lady I represented was on jobseekers allowance.  She was 
getting £45 a week because she was a young person.  Her bank reduced 
her overdraft limit month by month.  She did not wilfully breach her 
overdraft limit.  They just made a decision to reduce it each month, so 
one day she was within her overdraft limit; the next day, without doing 
anything, she was over her overdraft limit.  Within 8 months, they 
deducted £800 from her account.

CURWEN:	Joanna?

ELSON:	Well clearly it’s difficult, isn’t it, for us to talk 
about individual cases where we don’t know the background, but I do 
challenge the assertion that this is people who are not well off who are 
particularly affected here.  If you look at the research that somebody 
like Professor Elaine Kempson at Bristol University has done for the 
Financial Services Authority, what she’s found is that people on low 
incomes tend to be very well organised because they have to be and 
actually that it can be some of the more well off people for whom this is 
a convenience.  It’s a trade off, isn’t it, against price versus 
convenience.

CURWEN:	And we did hear Nick, one of our listeners 
there, saying that for him if he earns £100, that’s what he spends.  And, 
Bob, let me put it to you.  Some listeners will be horrified at the idea 
that people are claiming back thousands of pounds in charges that 
they’ve paid.  They will think that the people must have acted 
irresponsibly to incur all those charges …

EGERTON:	Not at all.

CURWEN:	… whereas most of us struggle to stay in the 
black.

EGERTON:	None of the people that I’ve represented could I 
in any way say had acted irresponsibly.  Misfortune had befallen them, 
like for example they became ill, they lost their job, their employer’s 
cheque bounced on them, and they had a little misfortune, a little hiccup 
in their accounts.  At the end of one month they were whacked for some 
charges.  They were that much behind the following month and they 
couldn’t recover.  If you’re earning £50,000 a year and you get a couple 
of penalty charges, you treat it like a parking ticket: you pay it and you 
make sure you don’t park there again.  If you’re on benefits and you get 
hit with penalty charges, you have no option.  Your funds are scuppered 
for the next month and it snowballs.  And people have been charged 
thousands of pounds in a year and when you look at their account at no 
time during that year have they been overdrawn than by more than a 
few hundred pounds, but they’ve suffered thousands of pounds charges.  
That is extortion.

CURWEN:	Joanna, let me put it to you again – this is 
disproportionate; that’s the argument.

ELSON:	I don’t agree with that.  I think that you know 
the banks will say that the charges are fair and lawful.  They will say to 
people talk to your bank early if you’re having a problem.  If you talk to 
your bank, they want to keep their customers happy because they want 
to keep them, they want to attract other customers and they want to sort 
things like this out.  And very often what happens is that people have 
gone too far down the line before they’ve talked to the bank and that’s 
where all of these problems occur.

CURWEN:	Let me move on and ask Phil Middleton if more 
and more consumers take this kind of action against the banks to try and 
reclaim charges or for example if the Office of Fair Trading were to 
decide the banks have got to reduce their charges, what would be the 
logical consequence of that?

MIDDLETON:	I think the consequence of the OFT actions on 
credit cards, potential actions around overdraft charges and the whole 
thrust of the FSA treating customers fairly regime, which is tending 
towards unbundling of products and greater transparency, is I think we 
will have a wholesale review of the way current account banking has 
gone.  And I anticipate that within the next 18 months to 2 years we 
will see the end of the current free banking current account model and 
what we will see coming in its place will be a variety of models which 
have very transparent charging structures based on usage.

CURWEN:	Annual or monthly charges, is that what we’re 
talking about?

MIDDLETON:	Well I think it’ll actually be very good for the 
consumer because there will be a whole range.  Different banks will 
decide to offer different types of products to different type of customers 
depending on different types of usage.

CURWEN:	Joanna Elson, do you think that’s going to 
happen?

ELSON:	Well I think that’s one of a number of 
possibilities.  I mean sadly I didn’t bring my crystal ball with me.  But I 
think one of the key things to remember in all of this is that banks will 
be wanting to and are already talking to their customers about what they 
want, and we do know that banks value free banking very highly and 
when they look at what people get in other countries – you know paying 
for cheque books and access to ATMs and so on and so on – what we 
hear is that customers want to keep free banking.  So you know all of 
this is up for grabs.  I certainly don’t see an early end to free banking.

CURWEN:	Bob Egerton, if indeed there is an end to free 
banking, a lot of people out there who stay in the black all the time will 
be quite fed up about that.  They will think that people like you are 
those who brought it about.

EGERTON:	It’s not us that will bring it about.  We’re not 
saying end free banking.  We’re saying bring back lawful banking.  
When companies like the banks are breaking the law, they should be 
held to account in the same way if I go into the corner shop and steal a 
Mars Bar, I expect to be taken in for theft.  The banks are deceiving 
their customers wilfully in purporting to their customers that their 
charges are lawful when they know they are not.

CURWEN:	Do you think that the end of free banking will 
be a good thing, having clearer charges for everybody?

EGERTON:	The banks should come up with a business 
model, which is lawful and reasonable.  They should stop trying to 
pretend to people that things are free.  They’re not free.

CURWEN:	Okay.  Well we’ve got to stop it there.  Thanks 
to all my guests: Joanna Elson from the British Bankers’ Association, 
Phil Middleton of Ernst and Young and Bob Egerton from the website 
Bank Charges Hell.  You can find more information on our website, 
bbc.co.uk/insidemoney, where you can have your say about bank 
charges and find details about all the other programmes in this series.  
That’s the last Inside Money for this year.  Paul Lewis will be back with 
Money Box next Saturday.  But before that, don’t miss Money Box 
Investigates next Tuesday evening at 8.  It’s all about how thieves can 
steal our financial information.  Until next summer, goodbye from me.


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