Bank charge legal battle dropped
The Office of Fair Trading (OFT) has announced it is dropping its legal battle over overdraft charges, and will explore other ways to make current accounts more transparent.
Both the High Court and the Court of Appeal have previously ruled that the regulator does have the right to use consumer contract rules to decide whether charges are fair or not.
However, last month, Supreme Court president Lord Phillips overturned these when he stated that unauthorised overdraft charges are an important part of current account services that banks provide for their customers - and that the amount of those charges is therefore not assessable for fairness.
As a result of the latest ruling, the OFT says it will not take any further court action.
"The Supreme Court judgment was not the outcome we had hoped for and was disappointing for many bank customers,” says John Fingleton, chief executive of the OFT.
“Having now considered in detail all the options available to us in light of the judgment, we have decided not to continue what would be a narrow investigation with limited prospects of success.”
The news will come as a blow to the 1.2 million people who still have claims for overcharge charges on hold. Banks had paid out around £560 million in refunds before the process was frozen in 2007 pending the outcome of the test case.
However, the OFT says it still has “significant concerns” about the current account market, especially around transparency and switching, and adds that fundamental changes are needed in order to protect consumers.
Banks earn around a third of their current account revenues from unarranged overdraft charges, and the OFT says these remain “difficult to understand, not transparent and not subject to effective consumer control”.
The regulator is now considering introducing new laws to make current account charges more transparent, and is currently in talks with banks, consumer groups and other organisations. A progress report will be made at the end of March next year.
In a statement, the British Bankers' Association, says: "The current account market continues to be a dynamic and competitive market and banks continue to take further steps to improve the transparency of charges on statement sheets and make further improvements to the switching process, including case studies to make it easier to compare accounts."
The future of bank charges
Since the OFT's legal battle commenced in 2007, banks have actually cut their overdraft charges - and the potential for new laws should prompt more cuts.
"The threat of future legislation [is] hanging like a sword of Damocles over the banks," says Kevin Mountford, head of banking at moneysupermarket.com.
While this is good news for customers who sometimes stray into the red, it does little to help those already hit with huge penalty fines for going over their agreed overdraft limits.
Many may still be able to claim their money back, either because they are suffering financial hardship, or through the Financial Ombudsman Service.
Many, however, are likely to drop their complaints, says Mountford.
There are concerns, however, that many people remain confused by the situation.
“Consumers have been left confused by this decision," says Peter Vicary-Smith, chief executive of Which?. "It looks like the big refund war is over but there is a narrow possibility that some people might be able to claim back their bank charges."
He says the situation needs clarification as soon as possible.
“Meanwhile, people should sit tight and avoid claims handlers, who’ll charge a large fee for doing something you could do yourself,” Vicary-Smith adds.
It is believed that the issue could be pursued under a different aspect on consumer law.
Adam Phillips, chairman of the Financial Services Consumer Panel, says the OFT, Financial Services Authority and the banks must now come to a clear resolution on bank charges.
He adds: "The Panel is also concerned with the lack of clear advice for those customers challenging bank charges. For customers in financial difficulties, banks must deal with them sympathetically and in line with the industry’s own lending code. All customers still have the right to refer their complaint on to the Financial Ombudsman Service."
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.
If you’ve have a complaint about a financial service product you have bought but the company you bought it from refuses to resolve your problem after eight weeks, the Ombudsman can help. The Ombudsman will investigate and resolve the matter. The Ombudsman is independent and its service is free to consumers. The Ombudsman may find in the company’s favour but consumers don’t have accept its decision and are always free to go to court instead. But if they do accept an Ombudsman’s decision, it is binding both on them and on the business.
An account opened with a clearing bank (few building societies offer current accounts) that provides the ability to draw cash (usually via a debit card) or cheques from the account. Some pay fairly minimal rates of interest if the account is in credit. Most current accounts insist your monthly income (salary or pension) is paid directly in each month and they offer a number of optional services – such as overdrafts and charge cards – which are negotiable but will incur fees.