Overdraft charges ruling due
Updated on 26 February 2009
The Court of Appeal rules on a test case over whether the Office of Fair Trading (OFT) can decide if bank charges for unauthorised overdrafts are fair.
Major high street banks took the case to appeal after a High Court decision in April last year that the fees charged to personal current account customers were subject to regulation by the OFT under "unfair contract" rules.
Lawyers for the banks argued the charges were exempt from the 1999 Unfair Terms in Consumer Contracts Regulations because they were legitimate "remuneration for goods and services supplied" to customers in the form of overdraft facilities.
The High Court judgment by Mr Justice Andrew Smith opened the way for an OFT investigation into whether the charges were actually unfair, and if so, what a fair charge should be.
The test case to establish the legal position was brought jointly by the OFT and seven banks and a building society after consumers began to reclaim millions of pounds of charges through the courts.
Fees for people who go into unauthorised overdraft or who breach their agreed limit can be charged as much as £35 for a single bounced payment, although campaigners claim the cost to the banks could be as little as £2.50.
If it is upheld, the judgment could cost banks £2.6 billion a year in lost revenue and lead to them having to make refunds of up to £1 billion.
Members of the industry have also warned that losing the case is likely to lead to the end of free banking in the UK, with consumers instead having to pay a monthly fee or a fee for every transaction they carry out.
City watchdog the Financial Services Authority has granted a stay on outstanding claims and is expected to continue extending it until the end of the case, which could end up in the House of Lords.
The banks involved in the test case are Abbey, Barclays, Clydesdale, Halifax Bank of Scotland, HSBC, Lloyds TSB, Royal Bank of Scotland Group and Nationwide Building Society.
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