Unauthorized overdraft fees. These are three words that worry every bank customer. An unofficial overdraft fee is the fee charged by a bank when customers go over their overdraft limit.
These fees can be very steep, with some banks charging high premiums for customers who exceed an agreed overdraft limit by as little as a few pence. A recent consumer report suggests that bank customers paid more than 4 billion pounds in unauthorized overdraft fees in 2004.
Scale Of Overdraft Fees
The BBC has reported that the seven significant banks charge unauthorized overdraft fees of £25 to 38 pounds. Interest rates on the illegal amount can also be high. While some banks charge under 8% interest, others have interest rates that hover around the 30% level.
The banking industry has been slated for this practice by customers who feel they have been mistreated. The Office for Fair Trading has also criticized banks for overcharging customers for unauthorized overdrafts. Late payment fees for credit cards have also been criticized. The OFT suggests that late payment fees for credit cards should be no more than £12 and should only cover the administration fee.
Getting A Refund
Consumers who feel their banks have overcharged them may be able to receive a refund if they go through a time-consuming process.
First of all, consumers can use the Data Protection Act to request details of all charges on their accounts over the past six years. Next, they need to inform the bank that they intend to sue in County Court to get this money refunded.
Are Unauthorised Overdraft Fees Legal?
There is some question as to the legality of unauthorized overdraft charges. Penalty clauses (such as unauthorized overdraft charges) are illegal under breach of contract law. However, banks do have the right to claim damages from customers who breach their contracts with the bank. To avoid going to court every time, most banks write these charges into the bargain. They are then able to raise those charges at regular intervals.
The banks see the unauthorized overdraft fee as a fee for services rather than a penalty. This could alter the legal position.
In many cases, it is the people who can least afford it who suffer these overdraft charges. This can become a cycle, with some people having to pay unauthorized overdraft fees month after month.
Help With Your Banking Rights
Consumers who want to find out more about their banking rights should check information from the Bank Action Group, a self-help organization for banking customers. This organization can guide consumers through the lengthy process of recovering unauthorized overdraft fees from their banks.
Many organizations say that the banks should make it easier for consumers to see what charges might be applied to their bank accounts. Until they do, consumers should read the fine print as the terms and conditions of each bank account contain information about the charge that might apply. Finally, when banks send variations of words, it is useful to read these to see what new conditions might apply.