By Ben Limberg
BBC Money Programme
Banks are making billions of pounds each year from penalty charges. But now the legality of these charges - which cost their customers an average of £30 a time - is being called into question and thousands of customers want their money back.
We have investigated why some campaigners claim penalty charges are illegal and what the banks and their regulators are doing about it.
Last year the top six High Street banks in the UK made an estimated £4.5bn from penalty charges. These are charges that are incurred for unauthorized overdrafts, bounced cheques and clearing Direct Debits when there are insufficient funds in the account.
Stephen Hone is a young father of three and a law student based in Plymouth. When Stephen's bank, Abbey, removed £64 from his account for two £32 penalty charges he called his branch and asked them to pay it back.
"I was livid, I was really annoyed that they refused to give me the money back, the banks are always trying to say they're sympathetic," says Mr Hone.
His bank pointed out that these charges were fair and within the terms and conditions of his contract. Mr Hone, however, believed those terms and conditions were unfair and therefore illegal.
Abbey offered to refund one of his charges.
The Legal Position
Stephen argued that under the Unfair Terms in Consumer Contracts Regulations (1999) all penalty charges have to truly reflect the cost of administering them.
They are not permitted to be a profit-making enterprise for any business. He believes if a penalty charge is higher than its administrative cost, it is illegal.
Stephen called Abbey again and threatened it with court action if it didn't refund both of his charges. Furthermore he told the bank he would reclaim all the charges he had incurred over the previous six years if it did not reconsider.
The bank declined the offer and said it would defend its policy in court.
So Stephen went through his bank statements from the past six years (the legal maximum period of time that money can be reclaimed in the UK) and filed a claim at the small claims court.
Shortly after filing his claim, Abbey paid Stephen back £840. Stephen used some of this money to set up a website that advises others how to reclaim their bank charges.
The key point in this case is that none of the banks want to reveal their true administrative cost for penalty charges.
We asked Joe Garner, of HSBC, what it costs his bank to process a charge.
"You'll understand that I won't go into specific details of individual costs", said Mr Garner.
We then asked him to give us a rough cost of these charges to which he 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".
After asking all the big banks the same questions, without getting an answer, we decided to find out for ourselves with our own Money Programme "Bank Commission".
We asked two professors of banking and a former NatWest executive to estimate the banks' costs.
The highest figure they concluded that banks could justify was £4.50 - much lower than what the banks currently charge.
HSBC also told us it settles customer claims for refunds before cases are heard in court.
We are unaware of any bank opting to defend its charges in a court.
Kieron Beal, a barrister from Matrix chambers, told us: "It's odd that they've not chosen to fight a case to date. It suggests that they are finding it difficult to justify the charges that they impose upon their customers".
He believes that if a bank did go to court it would lose.
And Nick White, head of personal finance at price comparison site Uswitch.com, says that if a bank did lose a case there would be huge publicity around the issue that would alert many more consumers to the fact they could challenge the banks. It would make it much harder for the banks to defend their charges.
The Office of Fair Trading has already forced banks to reduce their penalty charges for credit cards to a maximum £12, and it has now opened an investigation to establish what the real costs of current account penalty charges are.
The Bovingdon factor
The Money Programme went to Bovingdon - a typical English village - to find people that had also been affected by the banks' charges and to see if Stephen Hone's advice on how to claim back these charges really worked.
Jemma Miozga, a mother of one who works in a garden centre, had been charged up to £39 each time she exceeded the overdraft limit agreed with her bank, Halifax.
"The banks, I think are putting these charges on to make a profit, no-one would agree with the charges," she says.
"They are there for the banks to make a profit and it's not fair. I just thought it was what banks did. So, I was astonished when Stephen said [the charges] were illegal."
Mickey Boulton, a self-employed builder was frustrated with his bank over the amount it had charged him. "We've got in six months just under a £1,000 worth of charges. They've had a lot of money out of us, and I want it back."
As a result of Stephen's advice, Jemma successfully claimed back just under £5,000, while Mickey was offered £600, which he has accepted.
While the country waits in anticipation for the outcome of the Office of Fair Trading's inquiry, is it time to reclaim your charges?
If you think you have been a victim of what some are calling Bank Robbery, why not follow our step-by-step guide to reclaiming your bank charges, which includes letter templates to send to your bank?
The Money Programme: Bank Robbery! - BBC2, 2200 UK time, Tuesday, 12 December.