Paul
Lewis On Money Box in 2006 Discussing Unfair Bank Charges
LEWIS: Hello. In today’s programme, the banks respond to claims that they’re breaking the law when they charge us £30 for going overdrawn or missing a credit card payment. British Gas announces a record rise in energy bills, but what about people who can’t afford another £3.25 a week to heat their homes? Bob Howard’s with me today.
HOWARD: Looking at a new online course for anybody who wants to understand their company pension scheme.
ALEXANDER: Pensions are not that complicated. They can be explained in everyday language, which everybody can understand.
LEWIS: And as more people over pension age stay on at work, are employers telling their staff about the big changes that start later this year?
But first, banks are being challenged this week to justify their penalty charges of around £30 every time we go overdrawn without permission or miss a credit card payment. The charges are particularly hard of course on people with limited incomes. Students at Glasgow University are estimated to pay more than £1 million a year in penalties, and this week they’ve been told to write to the banks challenging their right to levy them. The challenge depends on whether the £30 charge is in fact what it costs the bank to return a payment if we go overdrawn and write to us to tell us, a point raised with us this week by Money Box listener Mike from North Yorkshire.
MIKE: The last time the problem kicked in for me was when the bank put its charges right at the end of the month, just before I got paid. I didn’t have the funds to meet it and so two of my payments were bounced and I was charged £36 for each one, so that’s £72. And I’m a pensioner now. It’s just an absolutely ridiculous charge. I’m concerned that the charge that banks lay does not reflect the amount of effort that they put into producing the charge. I’m a computer programmer and I know exactly what’s involved in the activities that they do. I think that the charges are far in excess of what it actually costs the bank to do them. You get overdrawn £3 and you’re charged £36. It’s absolutely ridiculous.
LEWIS: And it’s not just our listeners who are concerned. Last July the Office of Fair Trading warned eight major credit card companies that their default charges were what it called “excessive” and could be unlawful. Well that view is supported by a Scottish lawyer, Mike Dailly, who’s behind the student campaign and who’s drawn up a letter for customers to send to their bank if it tries to charge them £30 when they break the rules. The letter’s being rolled out across all Citizens Advice Bureaux in Scotland and explains why the charge is unlawful and why you won’t pay it. Well Mike Dailly’s in Glasgow. Mike, if people don’t look after their accounts properly, why shouldn’t the banks charge them?
DAILLY: Well the problem is that the law says that when somebody breaches their contract for example you go over your overdraft limit without permission the bank’s only entitled to recover its actual loss. Now in 1998 the average bank charge in the UK was £12. It’s now on average about £67. That’s a 500% increase. And from a legal point of view what I’m saying is that these charges don’t actually reflect real loss. They’re effectively penalty charges.
LEWIS: So you’re not against the banks recovering the real cost because otherwise obviously good customers would be subsidising bad, wouldn’t they? You’re against them charging more than those costs?
DAILLY: That’s right. I mean I think, as your listener said, you get an automated letter from your bank for going over your limit. That probably costs something like 50 pence. Why should somebody get a £39 letter for that transaction? And I think it’s interesting that when the banks gave evidence to the Treasury Committee in the House of Commons last year, they said that the way they work out their charges is they’re recovering all of their debt recovery costs on a global basis so, for example, that would include commercial debt write off, debt recovery for people that default on their loans. Why should the ordinary citizen have to pay for the banks losses?
LEWIS: Okay. Ian Mullen from the British Bankers’ Association, how do you respond to those charges - you’re charging far more than it actually costs you?
MULLEN: No, we’re not. The banking systems are geared towards an automatic process and when a cheque or another charge sends an account overdrawn or over an agreed limit, this involves manual intervention to extract the item from the day’s work, to research the customer’s recent credit profile and the working of the account, and then a managerial decision on whether or not to return the unpaid item.
LEWIS: So every time someone breaches the rules, humans actually intervene? It’s not all done in an automatic way by the computer that bungs the letter in the post?
MULLEN: In the majority of cases, yuh.
LEWIS: So
DAILLY: Could I come in there?
LEWIS: Yes, of course.
DAILLY: Because so many people, they have transactions declined and I don’t believe for a second, Ian, that there’s a human being that’s declining the transaction. It’s automated. MULLEN: Well, as I say, I don’t believe that that is the case in the majority of instances.
LEWIS: But, as Mike Dailly said, when the banks gave evidence to the Treasury Select Committee both the boss of Barclays and of Royal Bank of Scotland did say they added up all the charges for all the defaults and that includes pursuing some people through the courts and divided them by the number of people who make mistakes. So that’s not quite the same as what you’re saying. It’s implying that people like our listener, Mike, was being charged partly for taking someone else to court who refused to pay up.
MULLEN: Well I’d have to investigate that. That’s a piece of knowledge that I wasn’t made aware of, so
LEWIS: Well it was in the Treasury Select Committee evidence earlier this year.
MULLEN: … but I’ll come back to you with a response on that.
LEWIS: Mike Dailly, this letter’s being rolled out across Scotland a lot of students are issuing it, a lot of people at CAB’s. What’s the response from the banks? Do they pay up or do they defend it as Ian Mullen has here?
DAILLY: In most cases the banks are paying up, in our experience. Some people are getting all of their money back. We get e-mails from people saying, ‘We used your letter and we got £900 back’. Some people are only getting a percentage of the charges, but ultimately we’re finding it’s very successful. And what we’re finding is that the banks are very reluctant to see this issue going before senior courts.
LEWIS: Right Ian Mullen, if you’re right and if the banks are so confident of their ground, why don’t they just send these letters back and say pay up, take us to court?
MULLEN: Well we’re dealing mostly with students here in this particular discussion and of course banks are very keen to see that the student body, if you will, is serviced optimally.
LEWIS: So they’re doing it because they’re students and because they’re in Scotland?
MULLEN: Well you know they get free overdrafts and … No students today, particularly on the basis that the government has withdrawn the student grants, we know that they are in financial difficulty.
LEWIS: Mike Dailly, can I just ask … You’re doing this in Scotland. Is it a Scots law issue, or does it apply to the whole of the UK?
DAILLY: It applies across the UK. The law’s quite the same on both sides of the border. I would say, Ian, that most people that are using our letter are not students and many of them live in England and Wales and they’re getting their money back from the banks.
LEWIS: Okay, Mike. Just very briefly, Ian you’ve got all this criticism not just from individual lawyers, from the Office of Fair Trading, from the Treasury Select Committee. Can you hold the line on charges?
MULLEN: I sincerely hope we can because one of the alternatives, as happens on the continent, is that the cheque is simply bounced.
LEWIS: Okay. Thanks very much to Ian Mullen, who’s Chief Executive of the British Bankers’ Association, and Mike Dailly, a principal solicitor at Govan Law Centre. And you can have your say on bank charges on our website, which is bbc.co.uk/moneybox, and there are links to that letter to write to the bank if you have an objection also at the same address.
LEWIS: Hello. In today’s programme, the banks respond to claims that they’re breaking the law when they charge us £30 for going overdrawn or missing a credit card payment. British Gas announces a record rise in energy bills, but what about people who can’t afford another £3.25 a week to heat their homes? Bob Howard’s with me today.
HOWARD: Looking at a new online course for anybody who wants to understand their company pension scheme.
ALEXANDER: Pensions are not that complicated. They can be explained in everyday language, which everybody can understand.
LEWIS: And as more people over pension age stay on at work, are employers telling their staff about the big changes that start later this year?
But first, banks are being challenged this week to justify their penalty charges of around £30 every time we go overdrawn without permission or miss a credit card payment. The charges are particularly hard of course on people with limited incomes. Students at Glasgow University are estimated to pay more than £1 million a year in penalties, and this week they’ve been told to write to the banks challenging their right to levy them. The challenge depends on whether the £30 charge is in fact what it costs the bank to return a payment if we go overdrawn and write to us to tell us, a point raised with us this week by Money Box listener Mike from North Yorkshire.
MIKE: The last time the problem kicked in for me was when the bank put its charges right at the end of the month, just before I got paid. I didn’t have the funds to meet it and so two of my payments were bounced and I was charged £36 for each one, so that’s £72. And I’m a pensioner now. It’s just an absolutely ridiculous charge. I’m concerned that the charge that banks lay does not reflect the amount of effort that they put into producing the charge. I’m a computer programmer and I know exactly what’s involved in the activities that they do. I think that the charges are far in excess of what it actually costs the bank to do them. You get overdrawn £3 and you’re charged £36. It’s absolutely ridiculous.
LEWIS: And it’s not just our listeners who are concerned. Last July the Office of Fair Trading warned eight major credit card companies that their default charges were what it called “excessive” and could be unlawful. Well that view is supported by a Scottish lawyer, Mike Dailly, who’s behind the student campaign and who’s drawn up a letter for customers to send to their bank if it tries to charge them £30 when they break the rules. The letter’s being rolled out across all Citizens Advice Bureaux in Scotland and explains why the charge is unlawful and why you won’t pay it. Well Mike Dailly’s in Glasgow. Mike, if people don’t look after their accounts properly, why shouldn’t the banks charge them?
DAILLY: Well the problem is that the law says that when somebody breaches their contract for example you go over your overdraft limit without permission the bank’s only entitled to recover its actual loss. Now in 1998 the average bank charge in the UK was £12. It’s now on average about £67. That’s a 500% increase. And from a legal point of view what I’m saying is that these charges don’t actually reflect real loss. They’re effectively penalty charges.
LEWIS: So you’re not against the banks recovering the real cost because otherwise obviously good customers would be subsidising bad, wouldn’t they? You’re against them charging more than those costs?
DAILLY: That’s right. I mean I think, as your listener said, you get an automated letter from your bank for going over your limit. That probably costs something like 50 pence. Why should somebody get a £39 letter for that transaction? And I think it’s interesting that when the banks gave evidence to the Treasury Committee in the House of Commons last year, they said that the way they work out their charges is they’re recovering all of their debt recovery costs on a global basis so, for example, that would include commercial debt write off, debt recovery for people that default on their loans. Why should the ordinary citizen have to pay for the banks losses?
LEWIS: Okay. Ian Mullen from the British Bankers’ Association, how do you respond to those charges - you’re charging far more than it actually costs you?
MULLEN: No, we’re not. The banking systems are geared towards an automatic process and when a cheque or another charge sends an account overdrawn or over an agreed limit, this involves manual intervention to extract the item from the day’s work, to research the customer’s recent credit profile and the working of the account, and then a managerial decision on whether or not to return the unpaid item.
LEWIS: So every time someone breaches the rules, humans actually intervene? It’s not all done in an automatic way by the computer that bungs the letter in the post?
MULLEN: In the majority of cases, yuh.
LEWIS: So
DAILLY: Could I come in there?
LEWIS: Yes, of course.
DAILLY: Because so many people, they have transactions declined and I don’t believe for a second, Ian, that there’s a human being that’s declining the transaction. It’s automated. MULLEN: Well, as I say, I don’t believe that that is the case in the majority of instances.
LEWIS: But, as Mike Dailly said, when the banks gave evidence to the Treasury Select Committee both the boss of Barclays and of Royal Bank of Scotland did say they added up all the charges for all the defaults and that includes pursuing some people through the courts and divided them by the number of people who make mistakes. So that’s not quite the same as what you’re saying. It’s implying that people like our listener, Mike, was being charged partly for taking someone else to court who refused to pay up.
MULLEN: Well I’d have to investigate that. That’s a piece of knowledge that I wasn’t made aware of, so
LEWIS: Well it was in the Treasury Select Committee evidence earlier this year.
MULLEN: … but I’ll come back to you with a response on that.
LEWIS: Mike Dailly, this letter’s being rolled out across Scotland a lot of students are issuing it, a lot of people at CAB’s. What’s the response from the banks? Do they pay up or do they defend it as Ian Mullen has here?
DAILLY: In most cases the banks are paying up, in our experience. Some people are getting all of their money back. We get e-mails from people saying, ‘We used your letter and we got £900 back’. Some people are only getting a percentage of the charges, but ultimately we’re finding it’s very successful. And what we’re finding is that the banks are very reluctant to see this issue going before senior courts.
LEWIS: Right Ian Mullen, if you’re right and if the banks are so confident of their ground, why don’t they just send these letters back and say pay up, take us to court?
MULLEN: Well we’re dealing mostly with students here in this particular discussion and of course banks are very keen to see that the student body, if you will, is serviced optimally.
LEWIS: So they’re doing it because they’re students and because they’re in Scotland?
MULLEN: Well you know they get free overdrafts and … No students today, particularly on the basis that the government has withdrawn the student grants, we know that they are in financial difficulty.
LEWIS: Mike Dailly, can I just ask … You’re doing this in Scotland. Is it a Scots law issue, or does it apply to the whole of the UK?
DAILLY: It applies across the UK. The law’s quite the same on both sides of the border. I would say, Ian, that most people that are using our letter are not students and many of them live in England and Wales and they’re getting their money back from the banks.
LEWIS: Okay, Mike. Just very briefly, Ian you’ve got all this criticism not just from individual lawyers, from the Office of Fair Trading, from the Treasury Select Committee. Can you hold the line on charges?
MULLEN: I sincerely hope we can because one of the alternatives, as happens on the continent, is that the cheque is simply bounced.
LEWIS: Okay. Thanks very much to Ian Mullen, who’s Chief Executive of the British Bankers’ Association, and Mike Dailly, a principal solicitor at Govan Law Centre. And you can have your say on bank charges on our website, which is bbc.co.uk/moneybox, and there are links to that letter to write to the bank if you have an objection also at the same address.
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