Claim management firms could scoop £531m of reclaimed bank charges

With £2.12 billion of bank charges still waiting to be reclaimed by consumers, it’s no surprise that around 30 specialist claim management firms or ‘ambulance chasers’ have been set up to ‘manage the whole process’.

New research from uSwitch.com, the leading impartial price comparison and switching website, reveals that these organisations could cash in on as much as £531 million for conducting what is a very simple process. With fees ranging from 10% - 40% of the total amount recovered, on average this is a total of around £17.7 million for each of these organisations. In effect, consumers that use this service are reclaiming unfair bank charges from one organisation and instantly losing a proportion directly to another.

Historically, claim management firms have had the freedom to set up and practice with absolutely no regulation and immediate access to trusting individuals personal details. However, as of last week (23rd April 2007), all of these companies are now regulated by the Department of Constitutional Affairs, and follow strict rules of conduct. The aim is to ensure that consumers are given clear information about the options available for pursuing their claim. If an authorised person fails to comply with the rules, the regulator can now take disciplinary action. With the regulation coming into effect only one week ago, a further concern for these vulnerable customers is that the claims management firm they are dealing with may not be officially regulated yet.

Mike Naylor, Personal Finance Expert at independent price comparison and switching service uSwitch.com, comments: “Consumers using a claims management firm could soon see their ‘knight in shining armour’ transform into Dick Turpin. Paying up to 40% of reclaimed bank charges to a claims management organisation is totally unnecessary. This is not a difficult process and there is no evidence to show that these firms are any more successful than the individual themselves. We strongly advise people who have been hit with unfair bank charges to steer clear of these companies. For just £10, a fraction of the fee these firms are charging, consumers can manage their own claim.”

The ‘banking revolt’ kicked off just over a year ago when Stephen Hone successfully reclaimed his bank charges from Abbey in an out of court settlement. This spurned on many current account customers to actively reclaim up to six years worth of bank charges from their bank as well as 8% interest. Claim management firms, such as Charge Claim, are demanding up to 40% of any sum they successfully get back from the banks for the consumer. The majority of companies, including Banking Refunds, Banking Complaints and Bank Charge Recovery, are taking an average cut of 25% to take on a claim.

Naylor continues: “In the first instance, if customers are unhappy, they should complain to their bank and ask for a refund of charges. It will cost just £10 to get copies of statements for the past six years to identify all the charges that have been incurred. If their bank fails to deal with the complaint satisfactorily, the consumer can complain to the Financial Ombudsman Service (FOS) for free.”

However, even with the rise of both individuals and claims management firms, fighting to reclaim fees, the banks are still trying to find loopholes to side step the issue. Some banks, including Lloyds TSB, have claimed that they do not levy ‘default charges’, but instead ‘service charges’. Barclays and HSBC have changed the terms and conditions on their current accounts, so that the £25 charge made when an overdraft limit is exceeded will instead be called an “arrangement fee”. First Direct will also follow suit from next month.

Naylor concludes: “This is just another calculated move by the banks to try and deter customers from reclaiming the excessive charges which have been levied against them. Consumers also need to be aware that in some cases banks have closed down the current account as a result of a claim being made. To avoid this, people should find a new bank account to switch to before submitting a claim. Switching bank accounts is a straightforward process, once the new account is open all payments are automatically transferred to the new bank. Under the Banking Code, any bank charges incurred as a result of mistakes by either bank involved in the switching process must be refunded, meaning the customer is always covered.”