OFT wins bank charges test case

24 April 2008

But the battle may be just beginning

The Office of Fair Trading (OFT) today won a landmark test case over bank charges at the High Court.

The purpose of the case was to decide if the OFT had the power to pass judgement on whether it was unfair for banks to charge account holders fees of as much as £39 for going over their overdraft limits.

Mr Justice Andrew Smith, the judge hearing the case, today ruled in favour of the OFT, saying that the bank overdraft charges do fall under the consumer contract regulations. This means the OFT can apply these regulations to decide if the charges are unfair or not.

When summing up, Mr Justice Smith said: “I reject the banks’ contention that the Relevant Terms (the terms being challenged by the OFT) are exempt from assessment as to fairness under the 1999 Regulations.”

“This does not mean that the Relevant Terms are necessarily to be regarded as unfair or that they are not binding on consumers under the regulations.

“Those are not questions for me to decide in this judgement.”

From the ruling, the OFT will now be able to decide on the fairness of the charges. If it deems them unfair, it can then decide what a fair fee would be.

An appeal is expected from the seven banks and one building society that were involved in the case, a move that will delay the OFT investigation and further hold up the claims by thousands of consumers who want their bank charges back.

Since the start of 2006 hundreds of thousands of consumers have applied to get their bank charges refunded on the grounds that they were too high and unfair. To date an estimated £784 million has been refunded by UK banks in out-of-court settlements.

However, in July, the Financial Services Authority (FSA) allowed the banks to suspend refunds until the test case has finished. As things stand, this hold on claims will remain and will also apply to those cases launched in the county courts or with the Financial Ombudsman Service.

A spokesman for the FSA said: “The waiver will continue for the time being. When we granted it it we said it would run for 12 months or until the test case was resolved, whichever was sooner. The test case is not yet resolved as the parties could still decide to appeal.”

The banks have until May 22 to decide if they wish to appeal the decision or not.