Customers who have been overcharged by banks could receive compensation totalling billions of pounds if the Conservative Party wins the general election.
David Cameron said today people must be compensated “quickly and fairly” and the Tory leader is considering a plan to bring in automatic payback of overdraft charges if the courts back an Office of Fair Trade (OFT) ruling that they are unfair.
The High Court and Court of Appeal have ruled that charges of up to £35 for unauthorised overdrafts are are subject to the 1999 Unfair Terms in Contracts regulations. The banks have appealed to the House of Lords, whose verdict is expected this autumn.
The Independent has fought a campaign against overdraft fees, which are estimated to cost account providers no more than £2.50 each to process.
Mr Cameron has asked the shadow Chancellor George Osborne to look into automatic compensation if the final ruling goes against the banks, so that people would not have to apply individually. In an email to the website, MoneySavingExpert.com, the Tory leader said: “Once the legal issues have been resolved I agree with you that bank customers must be compensated quickly and fairly for any unfair charges that they have had to pay. So I’ve asked my Shadow Treasury Team to look at your suggestion that banks should pay money back automatically if the courts do rule that the charges are unfair.”
Martin Lewis, the website’s founder, said the Tories’ pledge could mean compensation totalling more than £10bn. Without it, he suspected that only £2bn to £3bn would be reclaimed, as the onus would be on customers to ask for their money back, rather than receiving an automatic refund. He said: “Outrageously, politicians as a tribe have kept their lips firmly shut in the three-and-a-half years since the bank charges campaign started. This is a surprise, as it’s been the biggest consumer revolution since the poll tax riots.
“While the court and the OFT are looking at current charges, there’s been no mention of whether a system to pay back those who’ve had their money taken unfairly will be set up. Here, David Cameron states clearly that he believes it should happen, which should lift the spirits of all those reclaiming.”
Campaigners, like Mr Lewis, claim that banks make between £2.5bn and £3.5bn a year from charges. He is planning to write to Gordon Brown, asking him to back the automatic payback campaign. Nick Clegg, the Liberal Democrat leader, has backed the proposal as an “extremely good idea” and will table a Commons motion calling for it after Parliament’s summer break.
Mr Clegg said: “The treatment of charges by the banks borders on the scandalous. It is a protected industry seeking to maximise profits by exploiting the weakness of individual consumers who lack information and sophisticated knowledge of products or legal advice. The principle should be established that bank charges must be transparent and cost-based.”
Reclaiming of bank charges has been on hold for two years for most cases until the courts resolve the issue. In this period, more than a million claims have been lodged by people hoping the floodgates will re-open. About £1bn was paid out to charges victims before the pause.