Financial institutions like banks and credit card companies inflict penalty charges on account holders. Bank customers numbering in the thousands have been able to recoup some of these. Credit card holders have not been as quick to request reimbursement for penalty charges.
Using a similar approach as taken with the bank, an individual with a credit card account can reclaim these charges imposed by the card issuer.
When challenging penalty charges imposed by either entity, it is important to understand the difference between penalty charges and charges imposed due to contract breach. Banks can legally charge credit card holders for late payments or unauthorized borrowing.
However, the charge imposed must equal what it costs the bank to deal with the issue. Recently, the Office of Fair Trading stood up for consumers, ruling that default charges imposed by credit card companies should not be more than £12.
If a card issuer charges more than this amount, it must provide a sound justification as to why.
Having a credit card involves entering a contract with the card issuer or backing bank. Exceeding the credit limit or making a late payment is considered a breach of this contract. These are liquidated damages upon which courts may enforce payment.
The charge imposed on the card holder must reflect the costs actually incurred. If the charge exceeds the damages suffered by the bank, the charge is classified as a penalty, which is not enforceable by a court.
In general, credit card companies charge their customers for late payments, returned payments, and exceeding credit limits. These charges are commonly included in the new transactions area of a credit card statement.
Card holders should review their statements to identify when these charges are present. Once the charges are identified, the card holder should request leniency from the credit card company. If a payment is made a few days before it is due but does not clear in time, the card issuer will most likely refund the late payment charge.
Unless a card holder is a repeated defaulter, asking for a reversal of penalty charges will usually have a positive outcome. Credit card companies are competing for business so they are often willing to make concessions. An individual can go back six years when requesting reversal of bank charges.
The situation is similar for credit card penalty charges. Card holders should request a list of charges imposed by the card issuer and the reasons why these charges were incurred. The card issuer has 40 days to provide this information. In some cases, the company may impose a small fee for duplicate statements.
Once the penalty charges have been calculated, interest on the amount paid should be added. This total should be provided to the card issuer with a request for a refund. If a phone call does not prove successful, a letter should be written. Which? provides a letter template to use for this purpose.
A claimant should ensure that the letter is addressed to the correct department and keep a copy of it. Shortly after it is due to arrive, a follow up phone call should be placed to the card issuer.
Within two weeks, the card issuer should provide a reply to the request for penalty charge refund. It may issue a full or partial refund or deny the request. In some cases, it may state that the charges are not illegal or that the card holder is mistaken about the issue.
Do not let this type of letter serve as a deterrent. If the belief is that the charges are unfair, write another letter and provide a deadline within which a response is requested.
If the offer from the card issuer is still unacceptable, the next step is small claims court. A letter should be sent to the card company informing it of this step. There are letter templates online to use for this purpose. In some cases, simply the threat of legal action may cause the card issuer to refund the charges. If it does not, a claim with the court should be initiated.
It costs money to file a court claim but as long as under £5,000 is being requested, the claim will be heard in small claims court. This means the legal costs incurred by the bank will not fall on the card holder. To make the claim, a person can visit the local county court or use the money claims online service provided by the court system.
Individuals can make claims from home using their computer and save the claim document. The fee for this service ranges from £30 to £120 and payment may be made online.
At this point, the bank may refund the penalty charges. If it does not address the claim within 14 days, the claimant wins by default. In some cases, card issuers acknowledge the claim to gain time to enter a defense. If they do not file the defense within a designated period, the card holder wins by default and can demand restitution for the penalty charges. If the bank enters a last minute defense, the matter goes into the next phase.
In many cases, banks do not defend claims for penalty charge refunds because the cost usually exceeds the penalty. In the unlikely event that a case does reach this stage, the bank may not show up for the court hearing, resulting in a default win for the claimant.
If the bank does appear, the claimant should be prepared with all the documentation required to substantiate the amount of penalty charges.
Though reclaiming penalty charges takes some effort, it can be well worth it. Other credit card holders have successfully requested reimbursement of these charges. Every card issuer takes a different approach to this issue, resulting in a different experience for each card holder.
While the first request may yield a refund for some people, others will be forced to file a court claim. Though money will be spent at this stage, the amount of penalty charges to be refunded will justify it.