The Times - Banks urged to refund charges after losing overdraft case

The end of hefty bank charges for unauthorised overdrafts moved closer today with a ruling by senior judges that the Office of Fair Trading can decide if such charges are fair.

But the unanimous decision by the Court of Appeal - that fees charged to personal current account customers are subject to regulation by the watchdog - could also herald the end of free banking.

Consumer groups immediately called on banks to reimburse an estimated £1 billion in charges and to settle thousands of claims pending a final decision in the courts.

The banks, who could face an estimated £2.6 billion a year in lost revenue, are expected to appeal.

Although the Court of appeal judges refused them leave to go to the House of Lords, the banks are thought likely to apply directly to the law lords to bring a final appeal.

Today, Sir Anthony Clarke, Master of the Rolls, with Lords Justices Waller and Lloyd, advised that pending any final appeal, the thousands of claims from customers seeking refunds in the county courts should be put on hold.

Customers who go into unauthorised overdraft or breach their agreed limit can be charged as much as £35 for a single bounced payment, although campaigners claim the cost to the banks could be as little as £2.50.

The banks had argued that the charges were exempt from the Unfair Terms in Consumer Contracts Regulations 1999 because they were legitimate “remuneration for goods and services supplied” to customers in the form of overdraft facilities.

The banking industry have warned that losing the case would see the end of free banking in the UK with consumers instead having to pay a monthly fee or a fee for every transaction they carry out. The banks involved in the test case are Abbey, Barclays, Clydesdale, Halifax Bank of Scotland, HSBC, Lloyds TSB, Royal Bank of Scotland Group and Nationwide Building Society.

Sir Anthony Clarke said that the banks had argued that under a contract between bank and customer, the bank “agrees to provide its customer with an overall package and in return the customer agrees to pay charges as and when they become payable in accordance with the contractual terms.”

But the appeal judges held that the charges for unauthorised overdrafts were not part of the “core or essential” bargain between bank and customer and therefore an assessment of fairness was not precluded by the regulations.

After the judgment, GMTV’s campaigning money saving expert Martin Lewis, who was present in court, said: “This is a massive victory for bank charge reclaiming.”

The British Bankers’ Association issued a short statement saying: “These are important points of law. The courts can now go on to clarify the fairness of charges.

“Before that can happen the Office of Fair Trading has to provide the courts with its views on how charges should be assessed.”

Consumer group Which?, which has campaigned against the charges, called on the banks to start refunding customers.

Which? chief executive Peter Vicary-Smith, said: “The courts have made it clear the banks should now throw in the towel. This case has been going on too long and it’s about time they tried to regain some of their dignity and paid customers their dues. This whole saga has severely damaged the banks’ reputations. If they try to appeal in the face of such a clear decision, they will suffer further losses in the court of public opinion.”

The OFT said: “This judgment confirms the OFT’s long-held interpretation of this important aspect of consumer law, and is one that consumers themselves would identify with. It is also relevant to businesses across the whole economy.

“We are now analysing the implications of the judgment for our ongoing investigation.

“The OFT has already written to the banks with its provisional view on the fairness of the terms, setting out its concerns that they may be unfair. We expect to reach a final decision on fairness later this year.”

Andrew Hagger, of Moneynet.co.uk, said: “This latest ruling is a small but positive step on the long and painful road for those holding out for a refund of their charges.

“Unfortunately, while the OFT carries out further investigations, the teetering piles of claims will continue to gather dust in bank head offices rather than provide the windfalls that so many consumers desperately need.”

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