HSBC might have to pay over £300 million in customer refunds if the High Court rules that overdraft charges are unfair.
The banking giant, which earlier this week reported a 10% rise in profits, has already paid around £115 million back to its customers who were unfairly charged for exceeding their agreed overdraft limit.
In its annual results, HSBC also revealed fears that overdraft fee refunds could cost it around £301 million. However, it says this figure is partially based on assumptions - meaning the figure could be even higher.
Overdraft fees are currently being considered by the High Court following the conclusion of a test case brought by the Office of Fair Trading (OFT).
The consumer watchdog believes that the charges many customers are forced to pay when they go over their overdraft limit are unfair. It asked the High Court to decided whether, as a regulator, it has the power to stop banks issuing these fines.
HSBC was one of eight banks and building societies who battled out the issue with the OFT in the courtroom. The trial concluded on 8 February and judgement is still pending.
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.
However, as HSBC notes in its annual results, the banks or the OFT are able to appeal any decision by the High Court meaning any resolution to the issue could be years coming. In the meantime, all overdraft refunds have been suspended.
However, customers who think they have been unfairly penalised for going over their overdraft limit are able to apply directly to their bank to be considered for a refund.
Six of the banks involved in the court action paid out a total of £559 million to customers during 2007. Only Abbey and Nationwide declined to disclose exactly how much they had refunded.
HSBC is the first of the eight firms who defended overdraft fees in court to reveal the financial impact should the High Court rule in favour of the OFT.
The others have refused to given any estimate for possible future losses arising from overdraft fee claims.
However, Lloyds TSB admits that the outcome could have a “significant financial impact”.