Banks make £2.5 billion from overdraft fees

7 July 2008

Banks make £2.5 billion a year from unauthorised overdraft charges, but could be forced to repay £10 billion if they lose the current court case into bank charges.

Reports in the weekend press claim that the Office of Fair Trading (OFT), which is currently fighting a legal battle with banks over bank charges, is set to publish new figures that highlight the amount of profit banks make from customers who slip into the red without permission.

Allegedly, high street banks collectively received £2.5 billion in unauthorised overdraft charges in 2006, on an average daily unarranged overdraft balance of £0.6 billion. It is also claimed that, should the OFT ultimately win its battle to cap overdraft fees, then banks will be forced to pay back £10 billion to customers.

In May, the High Court ruled that the OFT can apply consumer contract regulations to decide if bank overdraft charges are fair or not. However, the banks appealed this decision meaning the case is now being considered by the Court of Appeal. It is expected to reach a decision in early autumn.

Meanwhile, the next hearing in the case opens today, with judge Mr Justice Smith deliberating over whether historic overdraft fees going back six years can be challenged as unfair.

The hearing is expected to last around three days.

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