Banks back in court

Judge and hammer

Britain’s biggest banks are back in court today to challenge an earlier ruling that gave the Office of Fair Trading (OFT) the right to decide whether overdraft charges are fair or not.

Back in April, the High Court ruled in favour of the OFT with the judge, Mr Justice Andrew Smith, declaring the organisation does have the power to apply consumer contract regulations to decide on the fairness of bank overdraft charges. However, the seven banks and one building society involved in the test case appealed this decision, leaving customers in the process of reclaiming unfair charges in limbo.

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. This waiver was recently extended until 2009.

The appeal returns to the High Court today (Tuesday 28 October) but it may be some time before a conclusion is reached. Even if the Court does again decide in favour of the OFT, then further appeals could be forthcoming - meaning people who have been hit by huge fees face a long wait before they have any hope of getting their money back.

Peter Vicary-Smith, chief executive of Which?, criticises banks for pursuing the issue, especially considering the current financial climate.

"It's extremely disappointing that instead of looking for ways to make their customers' lives easier during these difficult times, the banks are piling on the misery by continuing to hit them with unfairly high unauthorised overdraft fees,” he adds. “The banks should not be appealing the High Court's decision. They should be working with the OFT to establish what constitutes a fair unauthorised overdraft charge and starting the process of refunding the customers they have been overcharging for years."

If the banks do drop their appeal, and the OFT finally gets the right to set out a fair level for overdraft fees, then experts expect it will insist banks lower their charges.

However, the concern is that banks will respond by putting up charges elsewhere - potentially ending free banking in the UK.

Should we really challenge bank charges?