ITN - Bank charges test case to be heard

A High Court test case could change the face of UK banking as high street lenders are forced to justify unauthorised overdraft charges.

Seven leading banks and the Nationwide building society are being challenged by The Office of Fair Trading (OFT) which claims the charges are unfair.
The banks, which earn up to £10 million a day from the penalties, say they are entirely legal.

The case formally begins later, with legal papers read, but the hearing is not expected to open until Wednesday.

Banks are thought to make between £2 billion and £3.5 billion a year in fees charged when customers go into unauthorised overdraft.

The fees charged to customers can be as high as £39, but campaigners claim that the actual cost to banks is as little as £2.50.

The regulator will argue that the overdraft charges come under the scope of the 1999 Unfair Terms in Consumer Contracts Regulations.

In recent years, millions of people have challenged their banks - many in court - over the charges and several hundred thousand are estimated to have had over £500 million refunded.

Which? spokesman Doug Taylor said: "I think it will mean that the default charges will be reduced for consumers and I would hope that at the end of the day, the customers would feel they are getting a better deal than they currently feel they are getting from their banks."

The OFT is set to argue at the International Dispute Resolution Centre in central London, that the overdraft charges come under the scope of the 1999 Unfair Terms in Consumer Contracts Regulations.

But banks claim the charges are not a penalty but a fee for a service.

If the judge rules that the charges come under this legislation, the High Court could then decide at a separate hearing at a later date on what a fair charge should be.

"It means (if we win) that we can go back to the court with new evidence from our banks market study and start to talk about whether and what a fair amount should be," a spokeswoman for the OFT said.

Bank customers can incur the charges for taking out an unauthorised overdraft or breaching their authorised limit.

Charges can also be levied if customers make a payment but have insufficient funds in their account to cover it or if banks stop a payment because the account holder does not have enough money.

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