Banks lose overdraft charges case
Thursday, April 24th 2008
The UK's biggest banks have lost a test case about overdraft charges.
A judge has decided that the Office of Fair Trading (OFT) can apply consumer contract regulations to decide if bank overdraft charges are fair or not.
But Mr Justice Andrew Smith said the judgement did not necessarily mean the charges are unfair.
Further hearings are expected which may delay the cases of thousands of claimants trying to reclaim their charges in the courts.
Since the beginning of 2006, hundreds of thousands of customers have reclaimed hundreds of millions of pounds from their banks, arguing the charges were too high and unfair.
Cases currently on hold in the county courts will stay on hold until 22 May, by which date the banks must decide whether they are going to appeal against the ruling.
Doug Taylor, personal finance campaigns manager at Which?, said: "The banks should do the right thing now and concede defeat, agree with the OFT what constitutes a fair unauthorised overdraft fee and refund their customers as soon as possible."
But the judge also decided against the OFT, saying that most of the banks' terms and conditions were plain and intelligible.
Test case
This judgement continues the process which could eventually allow the OFT to decide what a fair charge would be for unauthorised overdrafts.
Both the banks and the courts have been deluged with claims since the beginning of 2006, which they were finding very difficult to deal with.
But since both sides agreed to stage the test case, tens of thousands of claims have been put on hold in either the county courts or with the Financial Ombudsman Service (FOS).
The BBC has estimated that last year the banks refunded about £784m to nearly 378,000 customers.
'Snowballing situation'
Paul Tilley, a law student from Southampton, was one of those customers.
He says he won back £4,000 including interest after his bank imposed charges for exceeding his overdraft limit.
He has an outstanding claim with another bank and hopes the test case will force banks to change their behaviour.
"Looking at my statements from the time, they were taking up to £180 a month off me in charges, it then left me short for paying my bills."
"As a result my payments bounced, I then went over my overdraft again."
"It was a snowballing situation."
Further cases
The OFT first agreed last July, with seven banks and the Nationwide building society, to stage the test case to decide if it had the power under consumer contract regulations to regulate overdraft charges.
The issue of the OFT's jurisdiction was then thrashed out during 14 days of complicated High Court hearings in January and February.
Further High Court hearings are now expected to decide the exact level of charges, leading to further delays for hundreds of thousands of claimants.
At stake is not only the ability of aggrieved customers to reclaim their charges but also the ability of the banks to generate an estimated £3.5bn a year in income from levying them.
If the banks eventually suffer a complete defeat on the issue, then it has been widely predicted that they will try to recoup their losses by abandoning the long standing policy of so-called "free banking" for customers in credit.
Instead, monthly or annual charges could be introduced as standard for running an ordinary current account.
