Ruling for bank charges test case on Thursday

22 April 2008

Will long-awaited ruling mark the end of high bank charges?

It has been announced that the judge hearing the bank charges test case will be handing down his judgement this Thursday.

The case, which started in January this year, involves the Office of Fair Trading (OFT) and the UK’s eight major banks and building societies.

The OFT took on the banks and building societies over the fees charged when someone goes over their agreed overdraft limit on their current account or when a direct debit or cheque bounces.

According to the OFT, banks receive almost £10m revenue a day in ‘unauthorised overdraft fees’ which amounts to as much as £3.5bn in a year.

Banks levy charges of as much as £39 for a bounced cheque, direct debit or standing order.

Those in criticism of the current system claim that this amount is not a fair amount to charge because it does not reflect the true amount it costs the bank to recover their money.

In legal terms, the OFT is claiming that the charges are illegal as per the Unfair Terms in Consumer Contracts Regulation 1999.

If the OFT wins the test case, it will likely force those providing current accounts to reduce the fees they levy under the above circumstances. Additionally, banks could be made to return the millions of pounds worth of ‘unfair’ charges already paid by customers.

The judge hearing the case, Mr Justice Andrew Smith, listened to 14 days of evidence presented by the OFT and the banks, who represent 90% of the current account market, in January this year.

According to consumer group Which?, the ruling could result in one of these possible outcomes for the test case:

The OFT could win: The ruling could say that all the terms and conditions used by those banks involved in the test case over the past six years can be assessed by the OFT for fairness
The banks could win: The ruling could say that none of the terms and conditions used by those banks involved in the test case over the past six years can be assessed by the OFT for fairness
Something in the middle: The ruling could say that only some of the terms and conditions can be assessed for fairness. Distinctions could be made on the version of the terms and conditions in question, the types of charge or the bank in question

Even if either side are declared the outright winners, the losing side is likely to appeal the decision. Any appeals put forward are not likely to come to court until sometime in 2009.

As things stand, those people who have applied to reclaim their bank charges have had their cases put on hold until the outcome of this test case.

If the losing side appeals the ruling of the test case, the hold on these claims will stand until the appeal is finished sometime next year.