Reclaiming unfair business bank charges

Banks are making billions of pounds each year from penalty charges at your expense. Is your business entitled to reclaim thousands in unlawful bank charges? You can either do it yourself or get some help – the bank hopes you do nothing.

You may have heard the well-reported story of Alan Abrahams and his partner Valerie Knight-Gibbons whose hotel business collapsed due to the foot and mouth outbreak six years ago. They recovered £25,000 in overdraft charges from NatWest. This is not an isolated case. Most small businesses would probably be staggered to find out how much has been taken from them unlawfully.

Research by Business Moneyfacts found that despite the 2002 Competition Commission investigation into unfair bank charges, there had been a steady increase in the costs imposed on small and medium-sized enterprises (SME). The cost of going into unauthorised overdraft has risen on all business bank accounts offered by the major banks helping the banks record their highest every profits last year.

'There is a wide range of fees and charges associated with an unauthorised overdraft on a business current account. Charges can range from £4 to £30 per day or up to £30 per debit, a potentially costly mistake for any business to make,” said Lee Tillcock from Business Moneyfacts.

What’s the law?

Business accounts are covered by what is known as ‘Common Law’ as opposed to the Consumer Regulations which means that there are some differences in what the banks can and cannot do.

Bank charges for going overdrawn or for bounced cheques are technically a breach of contract by you (because you said you would stay within the limit etc), and do give rise to a liability to the bank. However, the law is quite clear and enshrined in 100 year old cases that the sum must reflect actual costs incurred and not exceed damages the bank suffered due to the breach of contract.

It is commonly thought that the maximum charge that could be justified is about £2.50 whereas the charges are commonly about £30 per incident.

What can you do about it?

Claim them back! This involves identifying and calculating all relevant charges over the last 6 years and then including statutory interest. Once this has been calculated a letter of claim (formal complaint) should be sent to the bank setting out the reasons why you think the charges are unlawful.

The bank will invariably write back and try to baffle you with legal jargon and defend their position. Many banks have simply told their customers “see you in court”. However, those customers who have persevered have been rewarded with near to full refunds in almost all cases.

If the bank refuses to refund the charges then there are two options. The first is to issue a claim in the Court and the second is to refer the matter to The Financial Services Ombudsman who can investigate the complaint and order the bank to pay a refund.

Yes, it does involve a little bit of work but given the amount at stake we recommend every small business reclaim the charges whether they do it themselves or get a third party to help.

Do you need some help?

A number of Claims Management Companies exist to help in these cases. They typically work on a ‘no-win-no-fee’ basis, meaning that you do not pay them a penny unless they are successful.

The only two things that will ask of you: your bank statements from the last 6 years, (copies will do), and that your turnover is less than £1 million.

If you are a busy person and would rather spend your time building and managing your business rather than sitting in telephone queues, then engaging such a company may be sensible. Their commission is typically 25% plus VAT of whatever they recover in return for doing all the work.

One such company which specializes in reclaiming unfair business bank charges is Claims Financial.

Claims Financial is regulated by the Department of Constitutional Affairs in respect of regulated claims management activities; its registration is recorded on the website www.claimsregulation.gov.uk