New ruling on unfair bank charges
Bank charge victims have been dealt a blow after the High Court judge hearing the high profile case said most banks’ terms and conditions were fair.
The latest round of the test case into the “fairness” of overdraft fees focuses on historical charges, and whether these could be appealed under common law or the Unfair Terms in Consumer Contracts Regulations (UTCCR) – or both.
Back in April the High Court judge ruled that current terms and conditions could only be appealed under UTCCR, and this week he has passed the same judgement for historical charges.
This means that some bank charge victims in the County Courts waiting for their cases to be heard (they are currently suspended until the test case concludes) may have to drop their claims if they are appealing charges under common law.
However, the Office of Fair Trading, which has brought the unfair bank charge case against the banks, says the majority of people will be appealing charges under both common law and UTCCR – meaning they still have a chance of getting their money back.
In addition, the High Court has asked three of the banks – NatWest, Abbey and Lloyds TSB – to return with more clarity over their historical bank charges.
The case is far from concluded; following April’s ruling, the eight banks (including Nationwide Building Society) involved in the case launched an appeal. This will return to the High Court on 28 October this year.
The test case has been rumbling on since January 2008, when it was first heard in the High Court. The OFT brought it against HSBC, Abbey, Barclays, Halifax, Lloyds TSB, Nationwide, Royal Bank of Scotland and Clydesdale Bank, which collectively account for 90% of UK current accounts.
The OFT believes that the banks are acting unfairly and has asked the High Court to rule whether, as a regulator, it has the power to stop them issuing these fines.
If the court decides in its favour, then the OFT is likely to demand banks not only reduce their penalty charges but also refund customers who have already been hit with fines.
But experts say the legal battle resulting from the appeal could continue for more than a year - meaning people who have been hit by huge fees will face a long wait before they get their money back.
At the end of 2007, the Financial Services Authority (FSA) put a waiver in place that removes the obligation of banks to deal with complaints and refund requests surrounding unauthorised bank charges until a final decision is reached.
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.
The Financial Services Authority is an independent non-governmental body, given a wide range of rule-making, investigatory and enforcement powers in order to meet its four statutory objectives: market confidence (maintaining confidence in the UK financial system), financial stability, consumer protection and the reduction of financial crime. The FSA receives no government funding and is funded entirely by the firms it regulates, but is accountable to the Treasury and, ultimately, parliament.
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.