Whether running a business or self-employed, it is important you fully understand bank charges, including penalty charges. These can mount up quite quickly if you're not careful. In this article, we'll take a detailed look at the penalty charges applied by banks and explain how to avoid them.

What's in this article?

• What are penalty charges?
  
• What causes penalty charges to be applied?
  
• What is the difference between penalty charges and interest?
  
• Are penalty charges capped?
  
• Can penalty charges be appealed?
  
• How can penalty charges be avoided?
  

What are penalty charges?

Penalty charges are the fees banks collect when they have to take action with a customer's account if a payment cannot be met or there is some problem with the bank account. Penalty charges cover the bank's costs.

Penalty charges are one of the 12 types of bank charges that appear on a bank's summary of standard account fees (you can learn about the main types of bank fees in France in our article on this subject). Every bank is obliged to publish its penalty charges on paper or online.

What causes penalty charges to be applied?

Penalty charges are applied when:

• You are going overdrawn (meaning there are insufficient funds on your account) with no authorised overdraft and the balance is about to become negative (unauthorised overdraft).
  
• You have an authorised overdraft, but a transaction will take you over the authorised limit (going over an authorised overdraft).
  
• You arrange a transfer with incorrect bank details, which the bank has to rectify.
  

Going overdrawn is the most common cause of problems with a bank account.

It is worth noting that under decree no. 2014-739 of 30 June 2014, since 1 January 2016, all banks have been required to notify their customers in advance if they are going to apply a penalty charge, and at least 14 days before debiting the account. Fees are debited the month following the incident.

What is the difference between penalty charges and interest?

If there are insufficient funds, banks might cover the necessary funds but apply account fees or debit interest, as well as a penalty charge for each payment needing to be covered (this cover is similar to a loan).

The penalty charge is a fixed amount charged depending on the number of transactions covered that exceed the overdraft limit during any one month. However, the overdraft fee is a variable amount, calculated as a percentage of the overdraft depending on the bank's annual percentage rate (APR). Overdraft fees are applied each month or quarter while penalty charges are applied monthly. Penalty charges and overdraft fees can both accrue at the same time.

Are penalty charges capped?

Penalty charges are capped by law. Under decree no. 2013-931 of 17 October 2013, bank charges are legally capped at €8 per transaction and €80 per month, or €4 per transaction and €20 per month for anyone who is financially vulnerable and to whom a special arrangement known in France as an OCF applies. The cap is set at €25 per month for anyone who is financially vulnerable but to whom this arrangement does not apply. You can learn more about financial vulnerability in the article published by the French government.

Banks are under a strict obligation to publish their penalty charges in the summary of standard account fees, and to respect the legal monthly limits, in order for their charges to be legally compliant. Explore the Ma French Bank standard table of fees (a bank document that includes the information listed in the summary of standard account fees) as an example.

Can penalty charges be appealed?

Provided banks respect the applicable limits and comply with the rates quoted in the summary of fees, they can apply penalty charges in the event of a problem with your bank account. If you feel they are unfair, you can write to the account manager or customer service at the bank asking for a refund. If you are unhappy with the bank's reply, or if the bank does not reply, you are advised to send a letter to the bank by registered post. As a last resort, you can contact the banking mediator or go to court.

How can penalty charges be avoided?

Penalty charges can be avoided by monitoring your account balance so you don't exceed your overdraft limit. You can choose to receive notifications when your balance is getting low or request a card with systematic authorisation, which automatically checks your balance before confirming your transactions.

If you have a large payment coming up, always ask your account manager to increase the authorised overdraft limit (you may even be able to negotiate the amount, the duration and the rate). This will avoid exceeding the overdraft limit when a large payment is due.

You could even opt for a current account with an online bank (such as BforBank, Boursorama Banque, Hello bank, Fortuneo, Orange Bank, N26, Revolut, Nickel or Ma French Bank), as most do not apply penalty charges. You can compare bank fees for all the French banks using the tool provided by the French Consultative Committee for the Financial Sector (CCSF).

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