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High court rules in favour of OFT in bank charge case

24/04/2008

The high court has ruled in favour of the consumer watchdog in a landmark test case over unfair bank charges.

Mr Justice Andrew Smith ruled the OFT could decide if the charges are fair – in a case brought by the watchdog and a group of seven banks and a building society – but further hearings will be needed.

The OFT has initially welcomed the decision, and is now going through the considerable judgement.

Mr Justice Smith wrote in his judgement that terms banks used to explain charges were "plain intelligible language".

"However, I reject the banks’ contention that the relevant terms are exempt from assessment as to fairness," he wrote.

It is estimated banks make £3.5 billion a year from unauthorised overdraft charges – the equivalent of almost £400,000 an hour.

Doug Taylor, Which? personal finance campaigns manager, said: "Today is a massive day for millions of consumers as well as the UK’s high street banks."

He added the banks should now resolve claims as quickly as possible.

"If they try to drag the process out any longer they will only be doing more damage to their reputations," he said.

The banks are now considering the judgement – which extends to 450 paragraphs over 119 pages.

A spokesperson for the British Bankers' Association (BBA) said: "The judgment is complex and the Banks are currently considering its implications.

"Further Court hearings will be required before the test case process is concluded. The likely timetable for the next steps in the test case process will be decided by the Court at a hearing which will take place on May 22nd 2008."

It is thought the banks could now make up for the loss of income from current account penalty fees, charges will be introduced for day-to-day banking.

Eventually overdrafts may not be available on current accounts, unless customers sign up to premium packages that banks are already introducing, linking overdrafts with a number of insurance products.

This follows what happened when credit card charges were trimmed by the OFT, and companies upped their repayment interest rates.

The Financial Ombudsman Service (FOS) – which is handling some complaints – is maintaining its hold on cases, along with county courts.

An FOS spokesman said: "At the moment it looks as though there may be a need for clarification."

He added there was the chance that either the banks or the OFT could appeal some parts of the decision.

The next step – if the banks do not appeal – is for the OFT to continue its investigation into whether charges are fair.

If it deems the charges are too high, it can force the banks – through the courts if necessary – to lower the charges.

During the case the FSA has provided banks a waiver so they do not have to deal with complaints about unauthorised overdraft charges.

However, bank customers who have paid fines are advised to still lodge their complaints.