Missed payments, late payment charges, we don’t know, do we care?

A recent survey carried about by CreditExpert.co.uk has revealed that the majority of us don’t really have much of a clue what’s going on when it comes to our finances.

One in ten of us admits to having no idea how much debt we are in whilst one in five of us admits to only planning our finances once every six months or less. More alarming perhaps, is that a whopping 74% of us don’t actually know how much we owe.

Managing Director of CreditExpert.co.uk, Jim Hodgkins said “it’s alarming to see that while almost the entire UK population think they are on top of their finances, many aren’t. Keeping track of your commitments and planning for the future are always important and in addition to checking bank and credit card statements, you also need to regularly check that your credit report is accurate and up to date”.

He added “this research provides a worrying insight into people’s perceptions of their finances. It is clear that many of us are not as familiar with our finances as we believe”.

Not only are missed payments recorded on your credit report and will affect your future credit applications, but you may face a penalty imposed on you by the lender or bank if you have failed to plan accordingly.

Alan Stubbs, a student customer of high street bank Halifax complained: “I forgot about a direct debit the other week and I ended up with a £28 charge on my account because I didn’t have the money in the bank to cover it”. He continued “but that took me over my overdraft so I got an extra £15 charge for interest”. That’s a total of £43 charges for being unaware of a financial commitment. Asked whether this was the first time he had been charged in this way, Mr Stubbs replied “Nah, it happens all the time”.

It makes no sense at all the pay charges on a bill you are going to pay anyway. With a little bit of time and effort; checking your credit report, reading through your bank/credit card/loan statements and knowing when your payments are due, you can avoid any charges, penalties or black marks next to your name.

OFT to act on bank charges, but not until July at the earliest

Millions of UK customers have been charged up to £40 a time for going over their overdraft. Is this charge fair? Personally, I think not, but I am not the law. Everyone bar the banks seem to think the charge imposed is too high and it is thanks to the pressure from thousands of consumers which brought the banks to their knees. Finally, after months of dragging their heels, they agreed to a High Court test case which would be carried out in two parts.

Last month saw the initial hearing in which Mr Justice Andrew Smith said the OFT had a legal right to investigate whether or not the charges levied by banks were fair. He also said that if the OFC considered the charges to be unfair that it should look at how the banks can compensate their customers. At the same time, he also gave the banks the right to appeal that decision.

Since the decision last month, the OFC have been unable to reach a decision on the case leaving hundreds of thousands people with court claims still unheard having no idea when things will change.

“We are facing a lot of litigants who have not had their claims struck out and who should be in a position to pursue their claim” Mr Justice Smith said, “ How long should we hold up the county court litigation? Are we talking months, years or weeks?”

The banking sector reportedly makes about £3.5 billion from charges levied onto customers and you can bet they don’t want to lose this income.

The judge has indicated he would like things wrapped up quickly which is seen as a positive move for consumers by Chris Warner, a lawyer for the consumers’ association Which? But he went on to warn “the banks are appealing and it will be some time before a judgement is issued in that hearing and so consumers are still some way away from getting their money back”.

It is unclear at this time when the OFC will report it’s findings but yesterday it gave a planned timescale of mid/late July to releases their initial findings. The banks have agreed with the regulator that if no agreement on what is a “fair charge” is reached by Christmas this year, the decision will be made my the courts.

Until then any case brought before a county court will remain on hold.

The UK’s biggest banks have lost a test case about overdraft charges.

A judge has decided that the Office of Fair Trading (OFT) can rule on the fairness of the charges, which many customers have been trying to reclaim.

Mr Justice Andrew Smith said his judgement did not necessarily mean the charges were unfair.

But the decision opens the door for the OFT to demand that banks cut their charges, unless any subsequent legal appeals are successful.

Thousands of cases currently on hold in the county courts will be frozen until 22 May, by which time the banks must decide whether they are going to appeal against the ruling.

Any additional High Court hearings after that date may further delay those claims.

‘Victory’

Since the beginning of 2006, hundreds of thousands of customers have reclaimed hundreds of millions of pounds from their banks, arguing the charges were too high and unfair.

The banks have consistently argued that their charges were fair and reasonable.

Campaigners have welcomed the judge’s ruling as a victory for consumers.

“The banks should do the right thing now and concede defeat, agree with the OFT what constitutes a fair unauthorised overdraft fee and refund their customers as soon as possible,” said Doug Taylor, personal finance campaigns manager at Which?.

But Angela Knight, of the British Bankers’ Association, said: “We need to take what the judge has said very carefully and not jump to conclusions. This is the start of a process.”

The judge decided against the OFT on two points. He said most of the banks’ terms and conditions were plain and intelligible.

And he added that the charges could not be challenged under common law.

Test case

This judgement means the OFT should be able to decide what a fair charge would be for unauthorised overdrafts.

The OFT described the ruling as an “important early milestone” for its investigation into an area of “high consumer interest”.

“We are continuing our investigation into the fairness of these terms and will consider our position after reviewing the detail of this judgement,” added the OFT statement.

Both the banks and the courts have been deluged with claims since the beginning of 2006, which they were finding very difficult to deal with.

But since both sides agreed to stage the test case, tens of thousands of claims have been put on hold in either the county courts or with the Financial Ombudsman Service (FOS).

The BBC has estimated that last year the banks refunded about £784m to nearly 378,000 customers.

‘Snowballing situation’

Paul Tilley, a law student from Southampton, was one of those customers.

He says he won back £4,000 including interest after his bank imposed charges for exceeding his overdraft limit.

He has an outstanding claim with another bank and hopes the test case will force banks to change their behaviour.

“Looking at my statements from the time, they were taking up to £180 a month off me in charges, it then left me short for paying my bills.”

“As a result my payments bounced, I then went over my overdraft again.”

“It was a snowballing situation.”

Further cases

The OFT first agreed last July, with seven banks and the Nationwide building society, to stage the test case to decide if it had the power under consumer contract regulations to regulate overdraft charges.

The issue of the OFT’s jurisdiction was then thrashed out during 14 days of complicated High Court hearings in January and February.

At stake is not only the ability of aggrieved customers to reclaim their charges but also the ability of the banks to generate an estimated £3.5bn a year in income from levying them.

If the banks eventually suffer a complete defeat on the issue, then it has been widely predicted that they will try to recoup their losses by abandoning the long standing policy of so-called “free banking” for customers in credit.

Instead, monthly or annual charges could be introduced as standard for running an ordinary current account.