Consumers in the UK don’t appreciate how lucky they are sometimes. The Office of Fair Trading has been doing a very good job in fighting for fairness and restitution of unfair bank charges for consumers. This is something that you would not find in many other countries, including the United States of America.

But beginning in 2005 the OFT took up the case of high credit card default charges and found that they had been set at an illegal and unfairly high level.

The OFT found that under the Unfair Terms in Consumer Contracts Regulations, 1999 (UTCCR) that consumer were being mistreated by UK banks.

It is true that while only a Court can provide an exact determination what is unfair, the OFT has a duty to consider and review complaints received by consumers claiming to have been subject to unfair terms. And they did so after consultation with the major banks.

A contract term is considered to not be fair to the consumer under UTCCRs if: ‘…contrary to the requirement of good faith, it causes significant imbalance in the parties’ rights and obligations arising under the contract, to the detriment of the consumer.’

One of the core components in the argument of unfair bank charges stems from the fairness of charges levied under common law where the amount payable at breach must be comparable to the actual cost of the breach. This would mean that banks can’t charge £35 for an actual breach that costs the bank £12, an amount the OFT stated was fair and reasonable.

These issues came to light through the case THE DIRECTOR GENERAL OF FAIR TRADING v FIRST NATIONAL BANK PLC.

In order for a charge to be considered fair under the UTCCRs and not be punitive, it must be limited to the type of costs which would be legitimately claimed against the consumer if the credit card company were to sue the consumer individually. These claims must not include costs which could not be recovered due to not qualifying as actual damages or they would have not been actually caused by the default.

This is where the banks really got into hot water. You see, any provision of the banks contract which would be unable to be viewed as fair under the UTCCRs would not be enforceable if it forces the consumer to pay a penalty fee which contains an unjustly high amount as a penalty above what the fair and reasonable charges would be for the actual event.

The OFT has also provide clear guidance on how they feel a fair default fee should be calculated. They said that a fair default charge should:

1. be calculated on the basis of a reasonable pre-estimate of the net limited additional administrative costs which occur as a result of the specific breaches of contract and can be identified with reasonable precision.
2. reflect a fair attribution of those cost between defaulting consumers.
3. be based on genuine estimate of the total numbers of expected instances of default in the relevant period, and
4. treat costs other than those net limited additional administrative costs as a general overhead of the credit card business and disregard them for the purpose of calculating a default fee.

What we do know is that a legitimate cost charged consumers may include the estimated costs of sending a default letter, direct costs attributed to dealing administratively with all defaults, a portion of general overhead expenses as long as the bank would not have had to incur those expenses if a default had not occurred.

Based on the above information some consumers have been successful in obtaining large refunds for unfair bank credit card penalty charges.

Extrapolating the same principles to other bank charge, such as late and over limit fees on current accounts, consumer are pushing for refunds of those charges as well that they claim to be unfair and recoverable.

While some consumers have been fortunate to receive full refunds of their bank and credit card charges under this doctrine of unfairness, other have received some or no refunds back.

Currently there is an attitude that all consumers should be tenacious, aggressive, focused and self-funded to go after the banks to recover these fees and charges. And while some consumers are well prepared to do just that, others are not.

I have seen some consumers settle for far less than they could have recovered because they are both emotionally involved in the direct argument with the bank and they have little or no experience in going up against the large legal hurdles the banks are putting forth.

Ultimately the real factor here is not if the consumer pursued the bank without reservation to the ends of the earth to recover funds, but was the largest amount of funds recovered. I would hate to see people intend to get their money back and not do it.

To assist consumers people can elect to utilize the self-help services from Myvesta UK and attempt to recover the fees themselves or utilize the bank charge recovery service provided by Myvesta on a no-win no-fee basis.