Don't be afraid of throwing down the gauntlet to banks

Last month I wrote in Jobs & Money about the late payment charges made by most credit card companies. These typically involve the levying of around £25 on the account of someone who pays a day late, even if this is caused by the company's late dispatch of the bill.

Such charges are unlikely to be enforced by the courts: penalty clauses are legally void unless they reflect the loss the party enforcing them has suffered.

This is hardly cutting edge law. None of the dozens of banks who issue UK cards, and who will lose out if people follow my advice not to pay them, has contacted Jobs & Money, or me, to take issue with what I wrote.

Over the years I have had a few of these penalties levied, and invariably when I have refused to pay I have been told that the charge would be "refunded" usually as "a good will gesture".

If banks thought this argument wrong, they would have taken a test case through the courts to establish their entitlement to the money.

Closely related to these penalties, as Bob Egerton a Cornish reader wrote to me to point out, are the charges most banks levy for unauthorised overdrafts.

A typical scenario is a person allowed a £500 facility, with an interest rate of 7%, which amounts to about 67p per week.

That person overdraws by £501 and it suddenly becomes unauthorised. The interest rate shoots up to 29% on the entire amount - about £3.98 for the week - and a charge of £25 is made, sometimes with a substantial amount for each day and each transaction on top.

The bank is at no greater risk of losing its money because of the extra £1. There is no significant extra administrative work, at most a computer generated letter.

In reality, of course, these charges are punishment for doing something unauthorised, and are no more legally sustainable than credit card penalties. On the other hand, the vast majority of people assume that when a bank makes a demand of them, they are obliged to pay.

Those who are not completely in control financially, and have to resort to unauthorised overdrafts, are particularly unlikely to assert their rights.

This culture of acquiescence makes billions for the banking industry, and should be tackled meaningfully by those who are supposed to represent consumers.

It was therefore disappointing to see the latest Which? report on bank charges. Using examples similar to the one above, the journal of the Consumers' Association points out how unfair most charges are, and calls on banks to change their practices.

However the, at best questionable, legality of the charges is not dealt with. Nor is legal advice given to how those facing such a charge should respond. A call to banks to give customers "a few days' grace" is as robust as it gets.

A profit driven industry is hardly going to surrender a substantial proportion of what Which? estimates as £4bn worth of fees annually just because it is asked nicely to do so.

The Consumers' Association has statutory powers to challenge unfair contract terms in the courts but rarely does.

It is not, in any case, clear that these charges are actually susceptible to challenge on that basis, as penalty clauses are governed by the case law rather than legislation.

It is a shame that the CA has not promised to back any member who refuses to pay penalty or unauthorised overdraft charges. Public calls for banks to behave decently have little impact and are soon forgotten.

Forcing them to either fight or surrender in thousands of individual cases, would make their worst abuses unworkable.

· Richard Colbey is a barrister