David vs the current account Goliaths

One man is taking British banking's biggest names to court

UK banks are a force to be reckoned with, but a father of three from Plymouth is preparing to take them on - single-handedly.

He is challenging some of the biggest high-street banks over the size of the penalty fees they charge current account holders. These are mainly for dipping into an unauthorised overdraft, having insufficient funds to pay a direct debit, or writing a cheque that later bounces.

Stephen Hone has filed separate writs with Plymouth Crown Court against Alliance & Leicester, Barclays, the Co-op Bank, Halifax, HSBC, NatWest, Lloyds TSB and the Nationwide building society. He seeks a ruling that the penalties they impose - and the contractual terms and conditions they use to justify them - are unlawful.

Each now has until 8 March to state whether they will come to court with a defence.

"Bank charges are pushing people into financial hardship," says Mr Hone. "Someone has to stand up and fight."

Penalty fees represent a lucrative source of income for Britain's banks and other current account providers. The consumer body Which? estimates that they charge customers £3bn a year simply for breaching authorised overdraft limits. The average penalty for a bounced cheque has risen by nearly a third over the past two years to £32.22, according to the price-comparison service Moneyexpert.com.

Last week, Barclays announced that it was raising its bounced cheque fee by £5 to £35. For the same misdemeanor, NatWest levies £38, Halifax £39 and Nationwide £30.

Mr Hone, 29, a law student, began his crusade by trying to take Abbey to court over what he claimed were unfair charges that arose when a direct debit could not be paid from his current account.

Arguing his case under 1999 legislation known as the Unfair Terms in Consumer Contracts Regulations, he said that Abbey had incurred only the administrative cost of notifying him that the payment had not gone out, and the charge it levied was far greater than a reasonable estimate of the bank's loss.

After failing to file a defence in time for a first court deadline, Abbey then offered Mr Hone £5,000 in an out-of-court settlement earlier this month.

"I can't put the real cost [of a failed direct debit] at more than £5 [a time]," says Mr Hone. "The costs being levied were disproportionate and would not be enforceable in court.

"In my case - and other cases like it - the banks don't want to risk going to court and losing, so they are backing down."

Spurred on by his success against Abbey, Mr Hone has now set his sights on the seven banks and on Nationwide, Britain's biggest building society. But he is not facing them alone: several campaign groups are also challenging major current account providers, including bankactiongroup.co.uk, bankcharges-hell.co.uk and penaltycharges.co.uk.

It is hoped that cases such as Mr Hone's will help open the door for thousands of similar claims - and even lead to backdated claims.

Bob Egerton from bankchargeshell.co.uk believes that if the banks thought they were right, they would go to court and defend themselves in a few cases to stop people suing.

"After all," he says, "they can afford to get the best solicitors on their side."

In Mr Hone's case, Abbey said it made the decision to settle out of court for "commercial and business reasons". Only two weeks ago, Gary Clay won £2,000 from Nationwide after he contested a current account charge; the building society said it was "uneconomic" to fight the claim.

All the providers targeted by Mr Hone insist their charges are fair. The legal arguments will revolve around whether banks can charge more than the "real" costs they have incurred.

"In most cases, the decision to charge is made by a pre-programmed computer," says Mr Egerton.

This view is shared by Vince Cable, Treasury spokesman for the Liberal Democrats.

"The charges bear no resemblance to the administration costs," he says. "They are far from transparent and cannot be justified."