Ok, Here goes Jonnie-boi

1) References

Charges are Unlawful as stated in Unfair Terms in Consumer Contracts Regulations 1999. Schedule 2 (e) of the said regulations gives a non-complete list of terms, which may be regarded as unfair, such as a term that requires a consumer who fails in his obligation, to pay a disproportionately high sum in compensation. Unfair clauses are unlawful and cannot be enforced.


They are also unlawful as they are a penalty charge, and penalty charges can only reflect a companies actual loss, they are not allowed to make a profit from a default by the other party.

Common law Principles (Penalty charges are irrecoverable at common law)
The precedent for this was:


Dunlop Pneumatic v New Garage [1915] AC 79.


Lord Dunedin set out some tests that are considered even in modern cases when the court is asked to rule on penalty charges.

They are;
a) If it is "extravagant and unconscionable" i.e. that the cost incurred by the business because of the breach is lower than what the consumer is being expected to pay because of the breach.

b) It is also a penalty where the consumer is to pay a larger sum due to failure to pay a smaller sum.

It was held that a contractual party can only recover damages for an actual loss or liquidated losses

Further more recent examples of where this has been applied include

Murray v. Leisure play [2005] EWCA Civ 963


“English contract law recognises that, if the parties agree that a party in breach of contract shall pay an unjustifiable amount in the event of a breach of contract, their agreement is to that extent unenforceable”


CMC Group Plc And Others V Zhang [2006] EWCA Civ 408.


“'Whether a provision is to be treated as a penalty as a matter of construction to be resolved by asking whether at the time that the contract was entered into the predominant contractual function of the provision was to deter a party from breaking the contract or to compensate the innocent party for breach. That the contractual function is deterrent rather than compensatory can be deduced by comparing the amount that would be payable on breach with the loss that might be sustained if breach occurred.”


2) They take whatever they like

Who sets their charges? They do,,, therefore they do take whatever they like. If you go out to unlawfully take £100 and you unlawfully take £100 then you have still unlawfully taken £100 the fact that you knew what you were taking makes no difference. They . take these charges without the consumer having any ability to stop them.

3) You also mention that they give notice of their unlawful charges

Some do, others dont. The co op for example will bounce a direct debit to stop you going £5.00 overdrawn and on the same day charge you £19.50 for the privelage, thus making you overdrawn by more than you would have been had they let it go through. Even with notice if someone tells me they are unlawfully taking from me on a certain day and then does just that it is still unlawfully taken.

I am fully aware of the banking code which is a BBA (British Banking Association) set of guidelines by the way not a FSA one as you state. These are voluntary only and suggest the banks to give at least 14 days notice of charges applied to your account..

If you think they are in the right then why are none of them challenging the 1000's of cases that they have against them in the court and why are they settling every claim before the court date.

Tha answer is obvious, they know they would lose and that would cause the floodgates to open even more than they are to new claims due to the publicity it would cause.



kirky1969 (penaltycharges moderator)

For further clafification i suggest you visit the web site penaltycharges.co.uk which will explain everything to you in terms of what rights we have as consumers to protect ourselves from profiteering organisations.