Banks lose bank charges test case
The UK's biggest banks have lost a High Court test case about overdraft charges.
A judge has decided that the Office of Fair Trading (OFT) can apply consumer contract regulations to decide if bank overdraft charges are fair or not.
But the judge also decided against the OFT, saying that the banks' terms and conditions are plain and intelligible.
Since the beginning of 2006, thousands of customers have tried to reclaim charges that can be as high as £39 when an agreed overdraft is exceeded or a direct debit or cheque bounces, on the grounds that they were too high and unfair.
The OFT believes the extortionate charges do not reflect the true cost incurred by the banks, which is thought to be as little as £2.50.
The High Court itself has not ruled that the charges are unfair and more hearings are expected, which means claims will be delayed and customers should not expect automatic payouts.
Claims from consumers have been put on hold since the OFT first agreed with seven banks and the Nationwide building society last July to stage the test case to decide if it had the power under consumer contract regulations to regulate overdraft charges.
Prior to this, banks are estimated to have paid out more than £550 million in refunds to customers.
In a statement to the press, the OFT said: "This is an important early milestone for the OFT and our investigation into this area of high consumer interest. We are now analysing the implications of the judgment for our overall investigation into the fairness of the terms.
"There may need to be further hearings to determine any outstanding issues arising from the judgment. The timetable for next steps will be decided by the court at a hearing before the end of May."
The hearing is expected to take place on 22 May, when it is possible that the banks will appeal.
Customers are advised to keep records of any charges pending further news from the OFT.
What do you think about bank charges?
An overdraft is an agreement with your bank that authorises you to withdraw more funds from your account than you have deposited in it. Many banks charge for this privilege either as a fixed fee or charge interest on the money overdrawn at a special high rate. Some banks charge a fee and interest. And other banks offer a free overdraft but impose very high charges for exceeding the agreed limit of your overdraft.
This is a mutual organisation owned by its members and not by shareholders. These societies offer a range of financial services but have historically concentrated on taking deposits from savers and lending the money to borrowers as mortgages, hence the name. In the mid-1990s many societies “demutualised” and became banks. One academic study (Heffernan, 2003) found demutualised societies’ pricing on deposits and mortgages was more favourable to shareholders than to customers, with the remaining mutual building societies offering consistently better rates. In 1900, there were 2,286 building societies in the UK; in 2011, there are just 51.