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Banks have been given another six months grace to put off dealing with customers who want their overdraft charges refunded.

The Financial Services Authority (FSA) has extended a decision which it first put in place a year ago.

The FSA said it had done this to help the courts decide the fairness of bank overdraft fees.

Bank charge campaigners said they were not surprised, but argued the situation was grossly unfair to customers.

'Unhappy'

It is thought that tens of thousands of bank customers have had their complaints put on hold pending a resolution on the legality of overdraft charges.

Marc Gander, of the Consumer Action Group (CAG), said banks should be stopped from continuing to levy overdraft fees on customers who had lodged complaints.

"It's about time that there was some reciprocal obligation on the banks to stop their enforcement procedures," he said.

"They should be stopped from defaulting people on disputed sums and instructing debt collection agencies on a matter which the banks are likely to lose," he added.

However, the consumers' association Which?, which has also been campaigning on the issue, described the waver as a necessary evil.

"Scrapping it won't get people their money back - only the banks can do that by conceding defeat and paying up instead of continuing to string out the process," said Louise Hanson of Which?

Hardship

The FSA explained that it was extending the suspension of its normal rules, which require banks to deal with complaints promptly, because the High Court has still not decided if bank overdraft charges are unfair or not.

Banks "will not be required to handle complaints relating to unauthorised overdraft charges within the time limits set out in the dispute resolution manual," the FSA said.

The regulator also pointed out that it had made its guidance to banks on dealing with hardship cases more explicit.

Defining hardship as an income "insufficient to cover reasonable living expenses and meet financial commitments as they become due," it said that banks might deal with customers in this situation by waiving charges in the future, or not enforcing past ones if the debt itself consisted of previous overdraft fees.

Despite this, another bank campaigner, Martin Lewis, said the waiver extension was a "kick in the teeth".

"It's nearly a year since the FSA first kiboshed reclaiming, and people are still sitting on their hands, unable to try to reclaim money," he said.

"How long are people expected to wait? Another six months? Until it goes to the Court of Appeal? The House of Lords? The European Court?" he asked.

More hearings

The FSA says it will review the waiver again before it expires at the end of next January.

Meanwhile the general stay on new cases being dealt with in the county courts and with the Financial Services Ombudsman (FSO) is also still in operation.

A second round of High Court hearings involving the banks and the Office of Fair Trading (OFT), which may finally decide if bank charges are fair or not, is expected to start before the end of the year before Mr Justice Andrew Smith.

Earlier this year he ruled that the OFT had jurisdiction in the matter, and he has recently been asked to rule if fees levied under previous bank terms and conditions can also similarly be assessed by the OFT.

But any appeals on the issue of the OFT's jurisdiction, or the fairness of the fees themselves, could drag out the issue far into next year

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A High Court judge is to take time considering his decision in the latest stage of the case into the fairness of bank overdraft charges.

Judge Mr Andrew Justice Smith decided at the end of a three-day hearing that no immediate ruling would be made regarding banks' historic fees.

The session heard arguments on whether charges going back for years can be challenged by bank customers.

It is the latest stage in the dispute over the fairness of overdraft fees.

Tens of thousands of claims for the refund of bank charges have been frozen in the county courts since the Office of Fair Trading (OFT) and eight banks agreed on a test case to clarify the situation.

The OFT has been seeking legal confirmation that it can rule if bank overdraft charges of up to £35 are fair or not.

But the banks, which provide about 90% of the UK's current accounts, are aiming to protect the estimated £3.5bn a year of income they generate from charging customers who go overdrawn without permission.

They are already appealing against the judge's initial ruling - that the OFT can assess whether fees are unfair.

That only related to current agreements between the banks and their customers.

After the latest hearing, the judge said he would consider the arguments on whether fees levied historically could be assessed for fairness but did not set a date on when he would make a decision.

The entire legal process is expected to last several more months

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The High Court is hearing the latest stage of the case into the fairness of bank overdraft charges, by studying historic contracts.

Judge Mr Andrew Justice Smith will determine whether charges going back for years can be challenged.

The banks are set to appeal against his first ruling - that the Office of Fair Trading (OFT) can assess whether fees are unfair - by the end of 2008.

The current hearing is expected to last for three days.

Significant case

The OFT has been seeking legal confirmation that it can rule if bank overdraft charges of up to £35 are fair or not.

Eight banks, which provide about 90% of the UK's current accounts, have been keen to oppose this to protect the estimated £3.5bn a year of income they generate from charging customers who go overdrawn without permission.

Under pressure from hundreds of thousands of customers suing them for the return of their overdraft charges in the county courts, banks agreed to a High Court test case in two stages.

The first was on the authority of the OFT under consumer contract regulations. The second will be on the fairness of the charges themselves, which the OFT has been investigating since April 2007.

Tens of thousands of claims for the refund of bank charges have been frozen in the county courts since the test case was agreed.

Looking back

The current High Court hearing relates to whether overdraft charges levied historically can be assessed for fairness by the OFT.

The judge's initial decision - that the OFT did have the authority to consider fairness, which is being appealed against by the banks - only relates to current agreements between the banks and their customers.

The current hearing will consider fees from the banks' old terms and conditions for current accounts.

Meanwhile, the OFT is continuing its investigation into the fairness of overdraft fees and is expected to offer the banks its "preliminary views" by the end of July.

The entire legal process is expected to last several more months.

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Barclays Bank is to cut the charge levied each time customers go beyond an agreed overdraft limit.

The penalty will change to £8 for each transaction made while in the red without permission, from a levy of up to £35 a day.

The change, happening in August, comes as eight banks prepare to defend the fairness of their overdraft charges in a high-profile High Court case.

The bank is also offering a temporary authorised overdraft extension for £22.

Large numbers

The Office of Fair Trading estimates that the banks make £3.5bn a year in unauthorised overdraft charges. In 2007, Barclays paid £116m to customers who sued for the return of their overdraft charges.

Marc Gander, of the Consumer Action Group, gave the cut in charges a cautious welcome.

"It vindicates our stance that the charges have been wildly excessive," he said.

"It shows that for years they have been milking their customers for nearly £30 more than they needed."

Account overhaul

The revamped current accounts are aimed at appeasing customers who are hit with large overdraft charges when they occasionally and accidentally go into the red.

From 18 August, the bank is launching its "Personal Reserves" - a buffer zone of about £250 which will be an authorised overdraft for five days.

All 11 million Barclays current account holders will receive a letter offering them the new Personal Reserve for £22 for each five days they use it. There will be no additional interest payments.

Anyone going beyond the limit - whether they choose the buffer or not - will be charged £8 for each unauthorised payment they make while in the red, up to a maximum of £40 per day.

Currently, bounced payments prompt a charge of £35 a day. Guaranteed payments are charged £30 (up to a limit of £90 a month).

"If customers continue to run their accounts as they are now, we will earn less money than before from overdraft charges," said a Barclays spokeswoman.

Those hit by bigger bills from the charges would be people using the new buffer zone who previously never exceeded their overdraft limit, and people who make more than four unauthorised payments a day.

The spokeswoman added that customers would receive advice to move to a more suitable account if they repeatedly triggered the five-day Personal Reserve, at a cost of £22 each time.

'Long wait'

Peter Vicary-Smith, chief executive of consumer association Which?, said he hoped other banks would follow Barclays' lead.

It vindicates our stance that the charges have been wildly excessive

Marc Gander
Consumer Action Group

We've long said that people want simple and transparent banking and Barclays is going in the right direction," he said.

"We welcome the reduction in unauthorised overdraft charges and a simplification for customers. It would have addressed a lot of customers' problems if this had happened years ago.

"We are pleased to hear Barclays' commitment to fee-free current accounts, and hope that other banks will follow their lead."

Legal battle

The banks and their customers are caught up in a long legal process which could eventually allow the Office of Fair Trading to decide what a fair charge would be for unauthorised overdrafts.

Eight banks are challenging the regulator, and the case is unlikely to be settled ahead of next year.

Since the two sides first agreed this long process of litigation last July, tens of thousands of claims for the refund of bank charges have been frozen in the county courts.

Nick Spooner, of consumer campaign group Legal Beagles, said: "This [Barclays' new structure] is unquestionably connected to the OFT test case."

Barclays, however, said it was planning the changes before the High Court case.

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The UK's banks have spent more than two years asserting vehemently that their overdraft fees were fair and just. Now the dam seems to have burst.

One of them, Barclays, has slashed its overdraft charges to just £8.

This is even less than the £12 default fee which all banks were forced to accept for their credit card customers in 2006.

Campaigners and consumers groups claim that Barclays' change threatens to undermine the defence of the entire banking industry in the forthcoming High Court hearing over the fairness of its charges.

The Office of Fair Trading (OFT), which has been challenging the banks over their fees, is not making any comment on this latest development.

But it must be fascinated by this turn of events.

One of the leading campaigners against bank charges, Marc Gander of the Consumer Action Group, was not so reticent.

"This move by Barclays dishes their own case," he said.

"Maybe they hope the whole issue will be dropped by the OFT."

And Chris Warner, a lawyer at the consumers' association Which?, said: "This does seem to be an admission by Barclays that its current unauthorised overdraft charges are unfair and that instead, a fee of £8 would be reflect its costs and so be a much fairer price."

Adverse ruling

Barclays says all this has nothing to do with the continuing litigation and that it has simply responded to its customers' needs.

This does seem to be an admission by Barclays that its current unauthorised overdraft charges are unfair and that instead, a fee of £8 would be reflect its costs and so be a much fairer price

Chris Warner, Which?

Specifically, the complaints of those who felt they were being clobbered unjustly if they went into the red briefly, or by accident, for instance, just before a salary cheque was due to arrive.

But despite claims to the contrary by Barclays, it is obvious that its new fee structure for overdrafts is in anticipation of an adverse ruling in the courts.

In April, Mr Justice Andrew Smith ruled that under consumer contract regulations, the OFT had the right to decide if bank overdraft charges were fair or not.

The banks are going to appeal against this in the Appeal Court.

But last week, the judge also prodded both sides into agreeing that another hearing, directly on the issue of fairness itself, should start before the end of this year, unless both the OFT and the banks could agree a deal before then.

Clearly the banks, or at least Barclays, have seen which way the wind is blowing.

The chances must be high that others, such as Lloyds-TSB, RBS-NatWest and HSBC, will copy it in some form or another.

What then?

This would surely lay the ground for the banks and the OFT to decide that further arm-wrestling in the courts about the current overdraft charges was a waste of time.

But it would not settle the matter entirely.

In July, both sides pitch up before Mr Justice Andrew Smith again.

This time, it will be to argue whether the overdraft charges levied in the past, under old terms and conditions, can also be challenged by the OFT.

How will the banks defend the validity of their past charges if they now have a new set of fees which they say are fairer and better?

It is worth remembering that tens of thousands of claims are currently in suspense in the county courts and at the Financial Ombudsman Service until the whole issue is resolved.

And billions of pounds of potential new claims for the refund of overdraft charges could emerge if the banks eventually lose their argument on the fairness of their old terms and conditions.

Yet in most cases, where the banks have submitted written defences to county court claims, they argued explicitly that their charges were a fair and accurate reflection of the real cost of bouncing a cheque, plus the cost of writing a letter to customers telling them about it.

That argument will be hard to sustain if those very same charges have now been slashed, under the guise of being more responsive to customers' needs.

Charging for accounts

Barclays' new fee structure does not mean that going into the red without permission now carries a relatively negligible cost.

Someone who does this once a month will now be charged £22 for using the new "personal reserve", whereas the cost might previously have been £30 or £35 a go, depending on whether the cheque was paid or bounced.

Someone who gets lots of cheques bounced in one day may also now be charged up to a maximum of £40 instead of £35.

But the underlying theme of the Barclays changes is not just to do with overdraft fees.

It is also about revamping the whole structure of its current accounts, by encouraging customers to opt for ones that carry a simple monthly fee.

Many banks have, in the past year or so, brought in such accounts with monthly fees, often touted as a luxury option, with frills such as insurance.

But Barclays now has an optional new current account, dubbed "current account plus", which offers a £300 interest-free overdraft for just £3 a month.

That would be cheaper to use than occasionally dipping into a "personal reserve".

Many commentators have said this is the way that UK banking would go if high overdraft fees were restricted - back to the days of charging customers for having an ordinary account.

It is happening right now.

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A High Court hearing to decide the fairness of bank overdraft charges will now start before the end of the year.

The Office of Fair Trading and eight banks agreed the timetable under pressure from a High Court judge.

Earlier, Mr Justice Andrew Smith allowed the banks to appeal against his first ruling last month that the OFT has jurisdiction over the charges.

If that appeal is successful, then any separate decision on fairness would be made redundant.

Wait for customers

Last month's ruling by Mr Justice Smith was a victory for the OFT, which has been seeking legal confirmation that it can rule if bank charges are fair or not.

Consumers are still some way away from getting their money back

Chris Warner, Which? lawyer

The banks have been keen to oppose this to protect the estimated £3.5bn a year of income they generate from charging customers who go overdrawn without permission.

Under pressure from hundreds of thousands of customers suing them for the return of their overdraft charges in the county courts, banks agreed to a High Court test case in two stages.

The first was on the authority of the OFT under consumer contract regulations. The second will be on the fairness of the charges themselves, which the OFT has been investigating since April 2007.

"The judge has indicated he wants the OFT's investigation to be wrapped up quickly, and that is a very positive move for consumers waiting in the wings," said Chris Warner, a lawyer for the consumers' association Which?

"But the banks are appealing and it will be some time before a judgement is issued in that hearing and so consumers are still some way away from getting their money back."

Suggested dates

The banks' appeal is likely to be heard this autumn, but if either side then takes the issue to the House of Lords, the OFT's jurisdiction in the matter is unlikely to be settled until next year.

Since the two sides first agreed this long process of litigation last July, tens of thousands of claims for the refund of bank charges have been frozen in the county courts.

Earlier in the day, Mr Justice Smith expressed his discontent at the OFT's initial statement that it had no idea when its investigation would be completed.

"While the investigation is going on, we are asking the county courts to keep the litigation on hold," he said.

"How long are they expected to wait?"

Later, however, the OFT said it would share its initial findings with the banks in mid- to late July.

The regulator and the banks agreed that if they could not agree on a fair level of charges, the issue would go to the High Court before Christmas for a ruling.

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A High Court judge has told the Office of Fair Trading to reveal when it will decide if bank charges are fair or not.

Mr Justice Andrew Smith made his comments as he granted eight banks leave to appeal against his earlier ruling on the issue.

Last month he decided that the OFT had the power under consumer contract regulations to rule if bank overdraft charges were unfair.

Thousands of bank customers will have to wait for their cases to be heard.

On hold

An agreement between the OFT and the banks to use the courts to resolve the legal issues at stake has seen all current and new claims put on hold.

It is thought that there could be tens of thousands of bank customers waiting to see if they can pursue their claims.

We are facing a lot of litigants who have not had their claims struck out and who should be in a position to pursue their claims

Justice Andrew Smith

The appeal by the banks against the OFT's jurisdiction in this matter is likely to be held by the Court of Appeal this autumn.

The Judge said uncertainty about the length of the OFT's investigation risked being unfair to people whose refund claims are currently suspended in the courts.

"How long should we hold up the county court litigation?" he asked. "Are we talking months, years or weeks?"

"We are facing a lot of litigants who have not had their claims struck out and who should be in a position to pursue their claims."

When asked if the OFT would conclude its investigation this year, the regulator's barrister Richard Coleman said he did not know.

"The investigation is ongoing and substantial further work and consultation with the banks has still to be undertaken," he said.

He explained that recent changes to the terms and conditions of some banks' current accounts had extended the timescale for the OFT investigation.

The OFT has been investigating the fairness of bank charges for more than a year.

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The UK's banks seem likely to appeal against a recent High Court ruling that the Office of Fair Trading (OFT) can scrutinise their overdraft charges.

An appeal by seven banks and the Nationwide building society is "under active consideration", a banking source told the BBC.

At stake is the estimated £3.5bn which the banks raise each year by charging customers for unauthorised overdrafts.

An appeal would probably see the issue being dragged out into next year.

The banks will make their decision known at a case management conference at the High Court in London on Thursday.

Disgruntled

After the first round of High Court hearings earlier this year, Mr Justice Andrew Smith ruled in April that the OFT had the power, under the 1999 Unfair Terms in Consumer Contract Regulations, to decide if bank overdraft fees were fair.

The issue has seen hundreds of thousands of disgruntled bank customers in the past two years trying to sue their banks in county courts or using the Financial Ombudsman Service to get their money back.

In some cases bank charges have led to customers being charged more than £30 each time they go overdrawn without permission or have a cheque bounced.

Fresh cases have been frozen since last July when the litigation between the OFT and the banks first agreed that the courts should resolve the issue.

Appeal

If the banks do appeal then the issue of the regulator's jurisdiction will go to the Appeal Court and then quite possibly the Houses of Lords before a final decision is reached.

The banks are likely to seek permission to appeal by arguing that the original decision was of limited binding authority, that the issue is of substantial public interest and possibly that the judge got the law wrong.

The banks will then have a further 21 days to submit the precise legal grounds of their appeal.

The OFT could also appeal as Mr Justice Smith rejected its claims that bank charges are also unfair penalties under common law, and that the banks' terms and conditions are not in "plain and intelligible language".

Second stage

Mr Justice Smith will also have other important issues to decide.

Both sides to the case will want to know how his ruling, which focused on the banks' current customer contracts, apply to the many claims that have been made under old terms and conditions.

And they will seek guidance on how they should proceed to the second stage of the litigation which will address the central issue of whether or not the bank's charges are fair or not.

However this stage may be delayed by any appeal on the OFT's jurisdiction in the matter.

If that happens then the banks are likely to face criticism that they are simply stalling, contrary to their publicly stated desire to resolve the legal status of the charges as quickly as possible.

The OFT launched a formal investigation into the fairness of overdraft charges last April and although it has not announced its conclusion it seems obvious that it believes that the scale and structure of bank overdraft charges are unfair.

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A High Court judge has ruled in favour of the Office of Fair Trading (OFT) in a crucial test case which could have widespread consequences for millions of banking customers in the UK.

The OFT believes the overdraft charges levied by banks and building societies are unfair and wanted the High Court to rule accordingly.

However, the banks insisted their fees were legal.

Yet, a huge number of cases brought by customers against their banks will remain on hold until 22 May, by which date the banks will decide whether to appeal against the ruling.

That means people will have to wait to see if they will get a pay-out, probably for some time yet.

What exactly has the High Court been deciding on?

The OFT was challenging seven leading banks and the Nationwide Building Society about the fairness of their unauthorised overdraft charges.

Customers are sometimes charged more than £30 for going into the red without permission, an amount which the OFT and consumer groups argue is significantly higher than the true administrative cost.

However, the OFT did not ask the judge to make a straightforward ruling that the banks' charges were unfair.

Instead its case argued that the overdraft charges come under the scope of the 1999 Unfair Terms in Consumer Contracts Regulations. The judge agreed with them.

This means the OFT now has the authority to decide itself if the charges are unfair, and the power to force the banks to change their practices as a result.

The regulator also argues that the banks' terms and conditions are not written in sufficiently plain English, something else that would give the OFT jurisdiction to act, yet the judge ruled against this.

For their part, the banks argue that their charges are a fee for a service and not a penalty charge, and also that they form a core term of their contracts with their customers.

As such they said the Unfair Terms legislation does not apply.

Why did the case reach the High Court?

The test case was announced last summer, in response to an unprecedented wave of mass litigation which has swept the country during the past two years.

The BBC has estimated that last year the banks refunded about £784m to nearly 378,000 customers who accused them, often through local court proceedings, of imposing excessive overdraft fees that were unfair and illegal.

In the vast majority of cases the banks chose to settle before the matter reached court. This has meant no legal precedent was set.

But the growing volume of cases led to an agreement between the banks and the OFT to seek a High Court ruling to ensure what the regulator called a "clear and orderly resolution" to the issue.

What is at stake?

Potentially billions of pounds and the future of free current account banking.

If the OFT argument is upheld it could mean banks and building societies having to return billions of pounds in fees collected from customers over the past six years.

In addition, some senior banking industry figures have suggested that the loss of income from charges - which the OFT estimated to be worth about £10m a day - could lead to introduction of monthly current account charges.

Most UK bank customers enjoy free banking while in credit, whereas in many other countries current account fees are commonplace.

Is the end in sight?

Not really.

There could be an appeal, possibly all the way to the House of Lords, which means the issue may not be resolved until next year.

Thursday's ruling does not automatically lead to payouts for customers.

It is expected that the question of compensation would be dealt with by the Financial Services Authority (FSA) and the Financial Ombudsman Service (FOS).

Can people still complain about bank charges?

Yes. Consumer groups are urging customers who are unhappy about their charges to continue to make a claim against their bank.

However, banks will not process complaints at this stage because they are still covered by a "waiver" granted to them by the FSA in July when the test case was announced.

This says they do not have to make progress with any new or unresolved complaints about their charges until the outcome of the court case.

In addition, since the test case announcement, most courts have also been halting new and existing claims for the return of overdraft charges until the legal issues are settled.

Some estimates suggest as many a million cases have been left in limbo. These cases will now remain on hold until the end of May when the banks will decide whether to appeal against the judge's ruling or not.

But campaigners argue it is still worth reporting new claims as banks must acknowledge them. This means customers' details would already be on the banks' systems should they lose the legal action and be told to pay compensation.

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Campaigners are cock-a-hoop that the OFT has been given a green light to rule that bank overdraft charges are unfair.

However it is the end of the beginning, rather than the beginning of the end.

More court hearings - possibly many more - loom in the coming months and the whole issue may stretch well into next year.

For a start, either the banks or the OFT could appeal.

If they think they have sufficiently strong grounds, then such an appeal might go first to the Appeal Court and even to the House of Lords.

If the banks decided to string out this part the dispute, which is purely about the jurisdiction of the OFT, it might seem at odds with their public stance that they want to see the legal issues resolved as quickly as possible.

But with so much money at stake they might feel that they had no choice.

Breach of contract

The OFT might also want another go at some of the issues that were chewed over before Mr Justice Andrew Smith at the High Court earlier this year.

His judgement, stretching to 119 pages, dismisses the idea that anyone who goes overdrawn without permission is in breach of their current contract with their bank.

Therefore, he decided, overdraft fees could not be a penalty for breaking that contract, as no breach had occurred.

But what about old contracts?

Most of the banks have been busily re-writing their terms and conditions since customers in their tens of thousands started demanding that their charges be refunded.

"An initial reading of the judgement suggests that the issue of historic terms and conditions is still wide open," said Marc Gander of the Consumer Action Group.

County courts

It is those historic terms and conditions which will apply to most of the thousands of cases that are currently frozen, or stayed, in the county courts and with the Financial Ombudsman Service.

It does not look as if that stay is going to be lifted anytime soon.

Mr Justice Andrew Smith offered the opinion in court that "the reasons for stays continue to apply".

They first came into effect last July when the banks asked the judiciary, in the form of the deputy Master of the Rolls, to put in place a general halt to new and current cases throughout the English and Welsh legal system.

He declined to do so, but wrote to local judges anyway, inviting them to make up their own minds in the light of the impending High Court test case to resolve the legal issues at stake.

In reality all cases have since been frozen.

The Judicial Communications Office (JCO) says it has written to local judges to inform them of the latest findings, but that there had been no change in policy.

"Attention has been drawn to the judgement but it is clearly a decision for the judge in each individual case to decide what course of action to take," it said.

Waiver

Likewise, the FSA will not be lifting the "waiver" it gave to the banks, which let them park any new or existing claims instead of dealing with them quickly.

"The waiver was initially granted for 12 months, or until resolution of the test case - whichever comes sooner," said a spokeswoman.

"The test case has not yet been resolved, it is open to parties to decide whether to appeal the decision, so for now the waiver will continue," she added.

All sides gather again before Mr Justice Smith on 22 May when they will tell him if they do intend to appeal.

One important development, that may come before then, will be when the OFT finally publishes its opinion on whether or not bank overdraft charges are excessive and unfair.

After studying the issue since March last year it has not in fact made a public pronouncement on the issue, though it seems obvious that it must believe that the general level of charges is too high.

Otherwise, why bother taking the banks to court in the first place?

Both sides expect that the precise issue of fairness will have to be thrashed out before a High Court judge in fresh hearings.

The banks are trying to argue that in some way this will remove the OFT from having the whip hand.

"That [fairness of charges] is a question that can only ultimately be decided by the Court and not, for example, by the OFT," said the Clydesdale bank.

That seems rather optimistic.

As Mr Justice Andrew Smith pointed out, the 1999 Unfair Terms in Consumer Contract Regulations made the OFT a "general enforcer".

As such, if the banks do not play ball after the OFT confronts them with its findings, it will simply go to court for an enforcement order.

In that situation the boot should be very firmly on the foot of the regulator and the banks will have to have very strong arguments to persuade a judge that the OFT has got it wrong.

Rejected arguments

What of the judge's detailed arguments?

Some of the most highly paid lawyers in the City of London are busy digesting them.

The OFT will be intrigued to learn that nearly all the terms and conditions that the banks currently publish to their customers are, in Mr Justice Andrew Smith's view, in plain and intelligible language.

But the banks may be puzzled why he has rejected their view that the 1999 regulations should not then be applied to their contracts.

They had argued strongly that being in plain and intelligible language gave them a "get-out" clause.

The banks will be even more upset to see that some of their other central arguments were firmly rejected.

They had claimed that their charges were in fact fees for a service, and that their customers received a service even when their cheques were bounced.

"If a bank declines to pay upon a relevant instruction, it supplies no, or no relevant, services by way of considering, processing or otherwise dealing with it," the judge said.

"I am unable to accept that either the paid item charges, and guaranteed paid item charges, or the overdraft excess charges, are the price or remuneration, or even a part of the price or remuneration, that the customer pays," he added.

He was even more scathing of the argument that overdraft charges were fees paid for receiving a whole package of services, in which banking services were free for those who stay in credit.

"I do not consider that the payments are made in exchange for the whole package of services supplied by the bank when it is operating a current account.

"Secondly, I do not consider that the payments are the price or remuneration for those services.

"The payments would not be so recognised by the typical customer when he opens a current account with a bank, and they are not generally so presented by the banks in their terms or other documentation," he added.

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