The Times - Bank charges case to go to appeal

Banks have been given the go-ahead to stage an appeal in the House of Lords in a desperate bid to block an investigation into the legality of bank charges.

Six high street banks and Nationwide Building Society will try to reverse a ruling made last month by the Court of Appeal, which found that the Office of Fair Trading (OFT) should be allowed to assess the fairness of unauthorised overdraft charges.

Banks and building societies could lose up to £3.5 billion a year in revenue if the charges are deemed illegal, according to the OFT.

The court case, which began 2007, will now reach the highest court in the land as banks fight to prevent a bill of up to £21 billion from customers reclaiming charges going back six years.

A ruling is not now expected before the end of the year.

The decision is another major set back for tens of thousands of current account customers who have already filed claims to have bank charges reimbursed.

The Financial Services Authority issued a waiver in 2008 allowing banks to freeze ongoing claims while the court case continues.

It is estimated that banks have already refunded £1 billion of bank charges in cases settled before the waiver was put in place.

Doug Taylor, of Which?, the consumer association, said: “It is outrageous that public money is being used to drag this saga out for even longer when the banks should accept the Court of Appeal’s decision and draw a line under this issue once and for all.

“Not only are the banks prolonging the misery for their customers, many of whom are struggling to make ends meet, they are doing further damage to their already battered public image.”

Banks charge customers up to £39 for going overdrawn. Campaigners argue that the charges are disproportionate. It is estimated that an unauthorised overdraft costs banks £2.50 to administer.

It is believed that the charges could be capped, a similar way to credit card fees, which are capped at £12. However, banking experts have warned that the outcome of the court case could result in the end of free banking, with customers having to pay a monthly fee or a fee per transaction.

David Black, of Defaqto, the financial data company, said: “If the banks see a reduced income stream in one area they will undoubtedly seek to improve their lot elsewhere.

“Sadly I think we’re getting a step closer to charges being introduced on full service current accounts.”

The banks involved in the case are Royal Bank of Scotland group and Lloyds Banking Group, both majority-owned by the taxpayer, Abbey, Clydesdale and HSBC.

The banks, along with Nationwide Building Society, first agreed to fight a test case in the High Court to decide whether the OFT should investigate the fairness of bank charges in 2007.

The following year a judge ruled that the OFT should be granted the right to determine the fairness of contracts, under the unfair terms in the consumer contract regulation.

Following an appeal by the banks, in February judges in the Court of Appeal ruled in favour of the OFT again. The judgement also indicated that the banks should not be allowed to take the case to the House of Lords. However, lawyers approached the House of Lords directly to demand the right to appeal.

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