In April 2006, the Office of fair trading (OFT) announced that the level of default charges being levied on customers by credit card issuers was ‘unfair’. By law, a default charge should not exceed a reasonable estimate of the administrative costs incurred as a result of a default. Consequently, the OFT recommended a £12 cap on credit card charges.

Find a best-buy bank account

The OFT’s message was that default charges were not a legitimate source of revenue and it simultaneously demanded that the banking industry revise its charges or face a challenge in the courts.

New research from the price comparison and switching website uSwitch.com, reveals that 18.6 million people have been hit by bank charges, totalling £4 billion, and over half have still not managed to claim the money back.

As a result, there is a pot worth £2.12 billion waiting to be reclaimed. For just £10, people can get copies of previous bank statements and write to their banks to reclaim charges incurred over the last six year, but only 14 per cent of consumers are aware of exactly what they are entitled to claim.

The research also revealed that while 65 per cent of the 18.96 million people that have incurred some form bank charges have disputed these fees at some point in time, only 48 per cent have successfully received a refund.

Almost one in ten have written to a regulatory body, such as the Financial Ombudsman, threatened their bank with legal action or taken them to court. Of the few that have taken legal action, 14 per cent claim to have had their current account closed down by their bank as a result.

Find a best-buy savings account

The banks’ arguments for the end of ‘free banking’ focuses on the fact that customers who go overdrawn are currently paying for those who don’t go overdrawn and that banks face costs in running current accounts for all.

It is widely believed that current account charges will be reduced in the very near future and that this will result in customers either having to pay a monthly fee for a current account or facing ‘pay as you go’ charges based on how much an account is used and what it is used for.

The research found that 83 per cent would leave their bank if they decided to introduce a monthly or annual fee for a standard current account. On average, consumers have been with their current bank for 16 years, while a third have stayed put for more than 20 years.

The introduction of banking fees will clearly be a catalyst for one of the biggest ever shake-ups in the current account switching market.

Some banks have already introduced charges to combat costs incurred on their current accounts, Lloyds TSB recently increased the monthly fee on their Premier Banking account by 70 per cent, from £15 to £25, unless customers keep a monthly balance in excess of £5,000, while Halifax has recently launched an account charging £10 a month.

And since 1 February, customers who only hold a current account with First Direct have been asked to pay at least £1,500 each month into the account or maintain an average monthly balance on the account of over £1,500.

Nick White, Director of Financial Services at uSwitch.com, said: “While the majority of banks are bending over backwards to refund bank charges to those consumers that take the initiative to fight back, this is not because the banks have gone soft in the last couple of months.

“They would simply rather settle now than have to appear in court and face a damaging test case which would set a dangerous legal precedent. However, the fact remains that only a court can determine whether a charge is unfair or not, and a test case may be the only way to resolve this issue once and for all.”

Consumers polled in the uSwitch.com survey said that a ‘fair’ sum for a bank charge would be on average £4.07. If fees were cut to this level, the average total incurred by consumers who have fallen victim to bank charges would fall from £215 to just £34.07; the revenue banks have generated from fees would fall by 84 per cent from £4 billion to £646 million.

Alternatively, if they were capped at £12, as they are now on credit card default fees, the banks’ revenue would drop by 53 per cent to £2.2 billion.

White said: “Refunding bank charges is though to be costing the banks £50 million. The financial Ombudsmen Service has recently claimed that it was receiving 5,000 complaints a day about ‘unlawful’ bank charges with a spokesman saying that the number of complaints was unprecedented and has ‘even eclipsed mortgage endowment complaints.”

-- Personal Finance & Savings