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Banks will not have to deal with new complaints about unauthorised bank charges for another six months.

The Financial Services Authority (FSA) has extended the "waiver" on complaints about excessive overdraft charges because a test case is still going on.

The extension means the period of grace for banks will now end in January 2010.

Law Lords will rule on the latest stage of the test case in the autumn, but the legal battle is expected to continue for some time.

'Progress'

"Although the test case is progressing well, we still do not have certainty on this complex issue," said Dan Waters, director of retail policy and conduct risk at the FSA.

Our objective continues to be facilitating a fair and consistent resolution of consumer complaints about unauthorised overdraft charges."

This is the third time that the original waiver, first granted in the summer of 2007, has been extended.

All new claims against banks were effectively suspended in July 2007 when the Office of Fair Trading (OFT) and seven banks, along with the Nationwide building society, agreed to stage a test case to see if their controversial overdraft charges were legal or not.

Following a three-day appeal in the House of Lords in June, all parties are now waiting for their decision on whether to uphold the right of the OFT to regulate bank charges

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The Tories 'white paper' on banking reform, released today, is the first major political document to brand bank charges 'unfair' and would force overdraft, credit card and mortgage charges to be clearly shown.

Among details of the party's plans for sweeping financial reform, it says: 'There have been numerous examples of unfair treatment of consumers – the mis-selling of payment protection insurance and unfair bank charges.'
Although the Competition Commission restricted banks ability to charge PPI earlier this year, it is still unclear whether the OFT will win its legal battle with eight High Street banks over the fairness of bank charges.

If the case, currently in the House of Lords, drags on past the next general election, which the Tories are expected to win based on current opinion polls, it is unlikely a new Government would be able to intercede.

The Tories' white paper also details how the party would set up a new Consumer Protection Agency.

This will take over the oversight of consumer financial matters from the Office of Fair Trading (OFT) and other powers from the Financial Services Authority, which would be abolished.

Banks and credit card providers have to be clearer about their charges, the paper recommends, before saying the party will set-up an independent financial website highlighting whether individual products are any good.

Providers will have to include a standard 'summary box' on all documentation sent to customers, which should make it easier for them to compare products.

All very welcome, with a hint of deja vu...

This is Money's banking and credit card correspondent Alan O'Sullivan says: The fact that a major political party has come out and branded bank charges unfair should be celebrated although, given the legal case on charges is now in its latter stages, they could have stepped in sooner. If they had – and forced Labour into tagging along with them – then the entire legal debacle with the OFT could have been avoided through a Parliamentary vote.

Although the wider changes to the banking system outlined in the white paper smack as necessary, given the tripartite system's overall failure on banking regulation, it is still unclear whether the Tory plans will greatly help consumers on a day-to-day basis.

For example, what is this Consumer Protection Agency other than an OFT by another name? From anecdotal evidence, it appears the OFT takes quite a while to deal with consumer complaints, given the tidal wave it has to deal with.

It takes thorough investigation and time before it will ever 'name and shame' a company, and this only happens after said company has carried out particularly heinous crimes over a long period. But that's understandable, in a way, given the number of companies it has to regulate (125,000 with consumer credit licenses).

How will this CPA do things differently? More people and funding? We've heard all that before.

And the Tories plan to create an independent website over all financial products? The OFT promised in February 2008 to create a truly independent credit card comparison website for consumers – which we're still waiting for.

This is one reason why the status quo should perhaps be shaken up, but it also means these shiny new promises may be written on the same Whitehall headed notepaper.

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The legal debate raging in the House of Lords over banks' obligation to repay charges and fees to customers has thrown up a new anomaly that could alter the outcome of the case.

One of the banks' barristers, Jonathan Sumption, alleged in the House during the week that a consumer victory would cripple banks financially, forcing them to return billions of pounds in past overdraft charges and pay what he terms 'restitution'.
Marc Gander - the head of the influential bank charges lobbying organisation Consumer Action Group (CAG) - has interpreted this as meaning banks would not only have to refund any bank charges levied on customers: they may also have to repay any of the profit they earned from investing the funds in the interim.

If the Office of Fair Trading (OFT) wins its legal battle against eight High Street banks, any 'restitution' payment could substantially swell any potential repayments to customers, who could receive all their refunded charges as well as a portion of any profits the banks have made from investing them.

However, there is disagreement over what the legal term 'restitution' could mean and the impact this could have on the banks and their customers' claims. There is also debate over whether customers may be able to reclaim all charges levied over an extended period of 19 years in the event of an OFT victory, instead of just six years as previously thought.

The legal term 'restitution' means the claimant in any case must receive compensation that restores them to the same financial position they were in before their claim. However, it can also mean the defendant, in this case the banks, must hand back any profit made from the disputed funds, termed 'unjust enrichment'.

If banks' overdraft terms are found to be unfair, consumers may also be able to reclaim funds back as far as 1995 – the year European rules on consumer contracts came into force – and as far forward as six years after any judgment from the House of Lords, due this autumn.

Currently, customers can only claim back six years from the date of their claim.

Daniella Lipszyc, a contract specialist and director of Manchester-based law firm Ultimate Law, said there is a 'fair chance' claim periods may be extended, but dismissed the chances of consumers sharing in banks' profits as a 'flight of fantasy'.

She said: 'It may be arguable as a point of law, but the argument is obscure and I think there is little chance of claimants getting a slice of this. Restitution usually means a person just gets back the money they have lost.'

However Mr Gander, a former law lecturer, added: 'The banks wouldn't have made such a big deal out of this term if it just meant the repayment of charges. They're running scared and petrified of not just losing billions in bank charges, but the tens of billions in profits they made from them. Claims could literally balloon.'

It is difficult to price the possible fallout if banks lose their legal case, but Nationwide Building Society said during the week that 12.6m people paid overdraft fees across the industry in any one year. A survey by CAG of 10,000 claimants found the average bank charges claim has been worth £1,800 in recent years.

Any possible repayments could therefore cost the banks billions of pounds, which could be multiplied several times over if they are also expected to part with profits earned from these funds.

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