December 15, 2006 – Today, as an added bonus, our casual Friday blog should have a lot of utility to you. Most people are aware that banks employ high-tech security measure to prevent thieves from being able to raid their bank vaults or even commit simpler acts of robbery. What most people don’t know is that your bank may actually be robbing you. The great majority of people are unaware that some countries have regulations that specify the amounts that are deemed to be “fair” for various banking penalties such as those imposed upon customers for overdrafts, bounced checks, credit card late payments, and so on.
For example, in the U.K., banks are not allowed to profit from the penalty amounts they charge to customers. Instead such penalties are only allowed to reflect the bank’s true administrative cost of the transaction that resulted in the levied penalty. When two U.K. banking professors were asked to estimate the administrative costs of most transactions that result in banking penalties, they responded that their absolute maximum cost estimate would be about £4.50 though many U.K. banks charge customers as much as £32 for penalty costs. This would be big no no as banks are prohibited in the U.K. from profiting from bank penalties.
Many people, through careless oversights while balancing their checkbook, often receive banking and credit card penalties that easily can exceed £20- £40 and quite often can accumulate into hundreds, and sometimes even thousands of pounds sterling, dollars, and other denominated currency over the course of a year. What most people don’t know, is that most banks are unwilling to fight small claims lawsuits for refunds of penalty charges in a court of law, but instead, opt to settle these refund requests outside of courts. According to a BBC report that investigated disputes over bank penalty charges in the UK, the reporter stated, “We are unaware of any bank opting to defend its charges in a court.” This is especially shocking considering the deep pockets banks posses versus the limited assets that an individual defendant usually possesses. Their refusal to go to court to settle refund claims against them for the administration of excessive penalty costs almost seems to be an admission of guilt, an admission that perhaps they are profiting from penalty costs though the law explicitly forbids them to do so.
Furthermore, when U.K. bank executives were asked to estimate the administrative costs of most transactions that result in penalties, the typical response was that of HSBC’s bank executive. “You’ll understand that I won’t go into specific details of individual costs”, he said. When the BBC journalist pressed him to stop avoiding the question, the HSBC executive replied, “Again it’s very, very difficult to assign costs to specific aspects of the customer relationship. It’s very, very hard to attribute a specific price tag to each aspect of that and that’s why fundamentally we don’t agree to looking at one specific charge”.
That’s, as they say in the U.K., bloody bullocks! Every bank can determine the profit margins of every transaction they execute. They know what their costs are for specific transactions and they know how much they charge their customers for that same transaction. If they didn’t know, how could they possibly focus on selling the higher profit margin transactions to drive profits? I believe that they do know, they fear the negative publicity from losing a court case brought against them regarding excessive bank penalties, and the resultant stampede of customers that would bring similar lawsuits against them once the customers are aware that they are victims of bank robbery.
In the U.K., Mickey Boulton, a self-employed builder, leveled such a lawsuit against his bank, and sued to recover £1000 in assessed penalty charges over a six month period, once he learned that the penalties could possibly be illegal. The bank settled out-of-court and agreed to refund £600 of those penalty charges to Boulton. Not bad for a Xmas bonus. So think you’ve been robbed by your bank in your country as well? Check out the Fair Trading and Consumer Laws in your country that regulate the levying of bank penalties and you may just receive a nice fat holidayrefund this year!
If you live in the U.K. and feel that you have been a victim of excessive bank penalties, for a step-by-step guide of how to claim a refund of excessive charges, click here. If you live outside of the U.K., you may still have legitimate claims to a refund. Just consult the law in your own country. Though it appears that the U.S. has not progressed as far as the U.K. in handling this issue, relief does appear to be on the way for American citizens that are getting pounded by excessive banking and credit card fees.
U.S. Senator Levin, who will be the in-coming Chairman of the Permanent Subcommittee on Investigations, states, “If credit card companies do not promptly take the initiative to clean up their industry, Congress and the regulators–including the Federal Reserve, the Federal Trade Commission, and the Office of the Comptroller of the Currency–must take action.”
Furthermore, a recent U.S. General Accounting Office investigated six of the largest U.S. credit card issuers – Citibank (South Dakota), Chase Bank USA, Bank of America, MBNA America Bank, Capital One Bank, and Discover Financial Services. The GAO discovered rampant excessive credit card fees, unfair interest rates, and problems with disclosure practices of 28 popular credit cards from the six largest credit card issuers.
With Democrats fully in control of the U.S. Congress now, it appears that the U.S. may be enacting similar legislation to that which exists in the U.K. If that happens, you can not only start lining up in the U.K. to receive refund checks of hundreds or thousands of pounds sterling, but you can line up in the U.S. as well.
J.S. Kim is the founder and Managing Director of maalamalama, a comprehensive online investment course that uses novel, proprietary advanced wealth planning techniques and the long tail of investing to identify low-risk, high-reward investment opportunities that seek to yield 25% or greater annual returns.