OFT win over 'unfair' bank charges

Last Modified: 24 Apr 2008
By: Bridgid Nzekwu

It's a step towards lower bank charges as the Office of Fair Trading wins the right to decide if overdraft fees are unfair. Bridgid Nzekwu explains.

The Office of Fair Trading has won a High Court ruling that it has the power to intervene over bank charges for unauthorised overdrafts.

The ruling means that the courts will now consider claims by the OFT that some of the charges are unfair and should be refunded to customers.

Today marks the latest stage in a long-running campaign to bring the banks to book over the charges.

Some customers have been charged as much as £38 every time they go over their agreed limit.

A step closer

This is the day Darren Harper and hundreds of thousands of other people around the country have been waiting for.

The internet marketing company boss is now a step closer to getting a refund of what he considers to be excessive charges for exceeding his overdraft. Charges that he refused to pay which led to Nationwide freezing one of his accounts.

"I feel quite angry about it, it just seems like they held my money against my wishes for something that I shouldn't really have had to incur.

"I mean, the charges at first were, like, £50 and that escalated to over £300 before I started questioning it and wrote a formal complaint to their executive management team." - Darren Harper, Nationwide customer

Unauthorised overdraft charges are big business - generating around £3.5bn a year in revenue. Some customers have been charged as much as £38 every time they go over their agreed limit.

'There will be no quick resolution to this case either way. But Which? would urge the banks t concede defeat and refund consumers what they're owed as soon as possible.'
- Chris Warner, Which?

Last July all new claims by customers were put on hold after seven banks, one building society and the Office of Fair Trading agreed to this test case. It all hinged on whether the banks terms and conditions were covered by regulations on fairness in consumer contracts.

Summarising his findings on those terms and conditions Mr Justice Smith said:

"I reject that they are exempt from consideration under the regulations. This does not mean that they are necessarily unfair or not binding. These are not questions for me to decide in this judgement."

It means the OFT does have the power to challenge the banks charges.

Although this is a victory for the Office of Fair Trading it doesn't mean bank customers with outstanding claims for refunds will get their money any time soon.

The banks may decide to appeal the ruling. And even if the OFT were to win that appeal, they'd still have to go back to court to force banks to change the way they charge.

"There will be no quick resolution to this case either way. But Which? would urge the banks t concede defeat and refund consumers what they're owed as soon as possible." - Chris Warner, Which?

Consumer groups maintain the charges for exceeding overdraft limits are unfair penalties. And even though the banks disagree, in the 12 months to July last year they refunded up to £1bn to customers.

Bank refunds

HBOS: £122m
RBS: £119m
Barclays: £116m
HSBC: £115m

In their annual results HBOS, which includes Halifax, revealed they'd refunded £122m. RBS, which owns Natwest gave back £119m. While Barclays returned £116m to customers. And HSBC paid out £115m

But many, like Darren Harper are still waiting for the money they believe they're owed. Further legal action could mean it's months or years before the dispute is settled.