Bank charge appeal thrown out of court
An appeal by eight banks attempting to overturn a previous High Court verdict giving the OFT the right to decide if bank charges are fair or not has been quashed.
The case, between of the Office for Fair Trading and eight of Britain's biggest banks, has been raging in the courts since 2007, with the issue being brought to the Court of Appeal at the end of last year.
In April 2008, 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 July 2009.
The decision has been welcomed by consumer groups. Peter Vicary-Smith, chief executive of Which?, says banks should now "throw in the towel".
"This case has been going on too long and it’s about time they tried to regain some of their dignity and paid customers their dues," he adds. “This whole saga has severely damaged the banks’ reputations. If they try to appeal in the face of such a clear decision, they will suffer further losses in the court of public opinion.”
People waiting to reclaim bank charges still have a wait on their hands. Andrew Hagger, spokesman for Moneynet.co.uk, says: "Unfortunately while the OFT carries out further investigations the teetering piles of claims will continue to gather dust in bank head offices rather than provide the windfalls that so many consumers desperately need."
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.