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After three weeks of hard fought legal argument, Mr Justice Andrew Smith now has to rule on one of the most significant court cases this year.

He must decide if the Office of Fair Trading (OFT) can assess whether or not unauthorised overdraft bank charges are fair.

The stakes are high, with up to an estimated £3.5bn a year in bank fees at stake and thousands of consumers in the county courts waiting to claim back their charges.

The case has been a lesson in subtle legal analysis and a lawyer's ability to dissect a simple sentence.

And it is clear from the complexity of the arguments so far that there is not likely to be an early resolution.

A central issue for the banks to demonstrate is that unauthorised overdraft charges represent the price paid by a customer in exchange for a service provided by the bank.

A relatively simple concept, or so you might think.

But pick it apart and it is clear there are numerous hidden questions that need to be addressed: What is a service? What is a price? When is something in exchange?

Does it matter if the customer and the bank have different views on what is being provided and paid for?

Does it matter if sometimes the same service is provided for free?

The Judge needs to wrestle with each of these, and much more besides.

Common sense

The OFT has urged the judge to take a common sense approach in order to give full effect to the relevant legislation (Unfair Terms in Consumer Contract Regulations).

Artificial distinctions should not be drawn.

If you spend £50 on a pair of shoes in a shoe shop, everyone would agree you have asked for and paid for the shoes, rather than for the various "preparatory" services supplied by the shop, such as measuring feet and searching the stockroom.

The same logic should apply to unauthorised overdraft charges.

You ask for an overdraft, not for the variety of services the banks say you ask for, such as considering the request and processing the payment, and you should be charged accordingly.

Also, says the OFT, if the banks are to be protected by the regulations, then the price must be "a real price", and this means that a customer must be able to calculate the cost of using a service.

The OFT believes this is not possible on the current wording of the contracts.

If the OFT is struggling, how can the average consumer be expected to manage?

The banks, of course, disagree.

Plain English

Even if the banks win on all these points, they have to show the contractual terms in question are in plain intelligible language.

Ironically, however, this phrase itself is unclear.

Do you, as the banks argue, just look at the words used and, giving them their everyday meaning, see whether a typical consumer could explain what they mean?

If you do, the OFT argues that "seven uncertainties" common to each bank's contracts mean consumers would struggle with this test.

For example, although a bank "may charge" the customer, the contracts don't explain the basis on which the bank will exercise this discretion.

Similarly, the order in which payments will be made can have a significant impact on the charges made, but the contracts don't adequately explain this.

The OFT has also argued that the terms cannot be in plain intelligible language if they do not tell the customer all he needs to know about the practical effect of the clause, even if simple words are used.

An OFT win on this point would be likely provide far more guidance for each of the pending cases.

However, the banks dispute this approach.

They argue that the issues are complex and they've done "the best they can" to make the contracts accessible.

And they say such an approach would mean complex contracts which could never be written in plain intelligible language.

Timing

But does this matter?

Arguably not - it doesn't mean the terms are automatically unfair; simply that the OFT cannot determine whether or not they are.

But there is a big question mark hanging over this last issue and, potentially, some of the other key arguments.

Whether the unauthorised overdraft charges are fair needs to be assessed at the time the "contract was concluded", and for much of the case, the parties have assumed this is when the contract was last amended.

However, following several questions from the judge, this assumption is now being questioned by the banks.

And because it is "too complex and too important" to be dealt with now, it will be looked at in a separate hearing sometime in the next few months.

It appears that the issue had just not been considered properly before.

This is disappointing given the number of legal minds at work on this case.

If this proves the central issue, it's back to the drawing board for some of the arguments made so far.

Long wait

So what clarity do we now have for those waiting in the wings at the county courts?

Precious little at the moment.

So what clarity do we now have for those waiting in the wings at the county courts?

Precious little at the moment.

That is why the judge has indicated that these cases should not be resumed yet.

In particular, we have little more clarity on the issue of penalty clauses which is relevant to nearly every case.

This point has largely been dealt with in writing rather than by the lawyers in the court because it involves a detailed analysis of each relevant contract.

We must wait for the judgment to be provided.

As the judge admitted at the close of the hearing, he has "a great deal to do" before he can make his judgment available so has "no idea at all" when he might do so.

And with an appeal already being anticipated, things may be no clearer for quite some time yet.

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The High Court judge hearing the test case on bank overdraft charges has suggested customers' claims should stay on hold for the time being.

Tens of thousands of cases have been frozen by county courts since the banks and the Office of Fair Trading agreed on a test case to clarify the law.

Yesterday, the banks said that the legal stays on some claims would automatically end this week.

The judge has now suggested the stays remain in place until his judgement.

"Many proceedings have been on hold in the expectation that this hearing will assist the management of the county court litigation," said Justice Andrew Smith.

"I haven't discerned anything during the hearing that undermines that expectation, and I don't mind that being conveyed to those charged with managing the county court cases."

Test case

The OFT is asking the court to support its view that it has the right, under the 1999 Unfair Terms and Consumer Contracts Regulations, to decide if bank overdraft charges are unfair.

The test case is prompted partly by a desire to resolve the huge wave of litigation against the banks in the county courts which has built up in the last two years.

This has seen the banks refund more than half a billion pounds to an estimated 300,000 or more customers, though without any admission of liability by the lenders.

Deadline

The court had been told that some judges had stipulated that the stays on current or fresh claims would end on 1 February or when the High Court hearing ended.

However, the judge pointed out that he could not order the courts to keep claims frozen.

"It is for the county courts to decide how to deal with the cases before them, either as a matter of their own motion or application from the banks or customers or any party," he said.

"I can't intervene in the county court cases or go further than that."

If the county courts take this advice, then tens of thousands of claims in the legal pipeline will remain unresolved and unheard for several more months.

Although banks have to log any new claims against them for the return of overdraft charges, they are not being processed by either the courts or the Financial Ombudsman Service.

The current High Court hearing may end on Friday but it could be several months before the judge makes his decision known.

That in turn could lead to legal appeals by the losing side and further delays in clarifying the law.

Contract debate

On the 13th day of the High Court hearing, several banks replied to a central accusation of the OFT that their contracts failed to say exactly what their charges were for.

Bankim Thanki, QC for Lloyds TSB, said the OFT had engaged in "very subtle distinctions, even for a lawyer".

He quoted from the Lloyds TSB leaflets and said: "The customer would have no doubt what the overdraft charges were for."

"It is plain that in relation to the monthly fee, daily fee and interest, they are part of the price for the unplanned overdraft and no customer would have any problem understanding this," he added.

Mr Thanki also rejected the OFT's argument that the banks failed to offer any real service when they considered whether or not to grant an unauthorised overdraft.

He said the banks put in place extensive procedures with staff and equipment to consider such requests.

"There is nothing metaphorical about the service being provided," he said.

Richard Salter, QC for the Clydesdale Bank, denied the OFT's contention that bank contracts contained numerous uncertainties that left the customer in the dark about how charges might be levied.

These accusations were "truly an example of lawyers looking for something to complain about", he said.

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Banks could be back on trial over the return of overdraft charges this week, the High Court has been told.
Many county court judges had agreed to suspend cases last summer until a final judgement on whether the charges were fair was made in a test case.

But Mr Iain Milligan QC, for Barclays bank, told the test case hearing that thousands of cases were scheduled to automatically resume this week.

The hearing is likely to end soon but a final judgement could be a while yet.

Mr Justice Andrew Smith said he will consider making a recommendation on the matter, but has said that a recommendation would have to be "even handed".

Common problem

District and county court judges were told they could temporarily halt any current or pending cases - and those still in the pipeline with the Financial Ombudsman Service (FOS) - until the High Court made a final judgement.

This was part and parcel of the deal in which the Office of Fair Trading (OFT) and the UK's main banks agreed to stage the High Court test case which started last month.

The aim is to clarify if the OFT has the power, under the 1999 Unfair Terms in Consumer Contracts regulations, to decide that bank overdraft charges are unfair.

Mr Milligan told the High Court that the automatic lifting of the stays was a "common problem" for all the seven banks and the Nationwide building society involved in the test case.

They face the prospect of having to respond if tens of thousands of customers write to county court judges trying to revive their claims and asking for summary judgement in their favour if their banks do not respond.

Consumer litigants

The past two years have seen hundreds of thousands of people use the county courts and the FOS to reclaim overdraft charges, claiming they are illegal under the regulations or that they are unfair penalties under common law.

The banks have denied that there is anything wrong with their charges, pointing out that they are clearly stated in their contracts with their customers.

But rather than risk losing a case in a county court the banks have settled without admitting any liability in almost all cases, an approach that saw them hand back more than half a billion pounds to customers in the first half of last year.

Eventually the deluge of claims forced them to seek a legal resolution.

Marc Gander, of the Consumer Action Group (CAG) which has been at the forefront of the campaign against bank charges, urged the Judge not to do anything to reinstate the stays.

"We would be extremely pleased if the stays were lifted," he said.

"It would be very good news if the right to justice was returned to ordinary consumer litigants," he added.

Language

Earlier, on the 12th day of the hearing, the court was told that bank contracts with their customers did not fall foul of the requirement that they should be in "plain and intelligible" language.

Mr Robin Dicker QC, for HBOS, said that bank contracts were obliged simply to avoid being obscure or ambiguous.

"Terms [in contracts] have to be straightforward and clear," he said.

Mr Dicker took the judge through the 1993 European directive which had led to the introduction of the current regulations.

"There is no hint that suppliers have to give consumers all details or facts, or advise them how the contracts may operate in the future," he said.

As part of its case the OFT has asked the judge to rule that bank contracts are not in plain English, so that it can investigate them.

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The public terms and conditions of bank current accounts fail to tell customers exactly what their overdraft charges are for, the High Court has been told.

Brian Doctor QC, for the Office of Fair Trading (OFT), said this flaw meant that their charges fell within the scope of consumer contract legislation.

Mr Doctor said some bank literature was "self serving propaganda."

Seven banks and the Nationwide building society say the OFT has no authority to investigate their charges.

Mr Doctor was speaking on the 10th day of the vital test case which is supposed to decide if the OFT can rule on the fairness of bank overdraft fees.

It is being staged with the agreement of both the OFT and the banks, partly in response to a mass of litigation in the county courts in the past two years, during which hundreds of thousands of bank customers have been suing their banks for the return of their overdraft charges.

Artificial concepts

The QC pursued the theme of his previous submissions on Tuesday and Wednesday, that the banks had been rewriting their terms and conditions as "fees for a service", simply in order to avoid the 1999 regulations on Unfair Terms in Consumer Contracts.

He said their language was now suggesting that the act of going overdrawn was an informal request to the bank, for it to consider granting the customer an overdraft or for processing his request.

"This is an entirely artificial concept based on a "deemed request"," he said.

"This is not a benefit at all or a new service," he added.

Mr Doctor went on to argue that despite the new wording adopted by most banks in the past 18 months they had, because of another important consideration, failed to sidestep the regulations.

He told the Judge, Mr Justice Andrew Smith, that the consumer contract legislation meant that a contract that specified a price also had to specify the service to which it related - but the banks' literature did not do this.

"It must be a price or remuneration in exchange for a service - none of them are," he said, referring to the charges laid out in the banks' current contracts.

"The goods or services promised in exchange must be clearly identified."

Lists of charges

To illustrate his point, Mr Doctor spent much of the day slowly going through the terms and conditions of each of the eight lenders, at times apparently stretching the patience of the Judge.

But one by one he claimed that while the lenders had listed their overdraft charges, none of them said explicitly what the charges or fees were actually for, or why they were being levied.

Describing the leaflets and booklets as incoherent and inconsistent, he said the charges were not fees for services but simply fees for a set of circumstances while overdrawn.

"They merely set out when they will be triggered," he said.

In that respect, he argued, nothing had in fact changed in the underlying contractual relationship between the banks and their customers.

Only the Nationwide, he agreed, had not re-written its terms and conditions.

Other arguments

In the course of the day Mr Doctor laid out several other objections to the banks' claim that overdraft charges are a core feature of their service, and thus not open to challenge under the regulations.

He said the main price for credit was the interest rate, and that personal banking was often advertised by banks as being free.

He returned to a previous point that banks often warn customers against going overdrawn, and portray overdrafts in their literature as something that is best avoided.

"Advice to reduce or avoid overdraft fees suggests that they are not the main part of the contract," he said, referring to the terms of the HBOS bank.

The hearing is now expected to last until next Thursday.

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Banks are "playing with words" to try to avoid consumer regulations, the High Court has been told.

Brian Doctor QC, representing the Office of Fair Trading, said recent changes to the banks' current account contracts were not consumer friendly.

He was speaking on the ninth day of a test case to decide if the OFT can rule on the validity of overdraft charges.

Seven banks and the Nationwide Building Society have denied that their charges are unfair.

Mr Doctor argued that the banks were wrong to claim that their overdraft fees were exempt from the 1999 Unfair Terms in Consumer Contract regulations.

"The terms [of their contracts] have been worded in ways which appear to be to get out of the regulations," he said.

Both sides have agreed to the test case to clarify the legal position after a wave of litigation in the past two years, which has seen hundreds of thousands of consumers claim refunds totalling hundreds of millions of pounds.

'Artificial notions'

Mr Doctor told the court that many banks had rewritten their contracts since the beginning of 2007.

But the changes "were not consumer friendly" he said, and in reality had made no difference to the banks' customers.

"The receipt of all this bumph in the last year has not changed the way they enjoy or pay for the services they receive from their bank," he said.

He added that the banks had introduced "artificial notions" about charging fees in return for the provision of a service, which were "simply put in place to provide a theoretical structure to avoid the application of the regulations".

In response to a question from the judge hearing the case, Mr Justice Andrew Smith, Mr Doctor denied that the banks were simply making the contractual situation clearer to their customers.

Could such clauses, which changed nothing about the uses of the account, be exempt from the regulations? asked Mr Doctor.

He also accused the banks of changing the wording of the contracts to avoid any language that suggested the customers might be penalised - possibly unfairly - for a breach of contract under common law.

No right

Mr Doctor spent much of the day attacking the banks' main arguments.

He said that overdrafts were in the category of things that, by definition, could not be in the main part of a contract.

Among such items were contract terms that the customers had not asked for; those that the supplier was not obliged to provide; "deemed" requests for a service; or preparatory, ancillary or incidental services.

An analysis of bank charges, he said, showed that all these categories applied to unauthorised overdrafts.

"Even if the unauthorised overdraft is part of the main subject of the contract, the charges themselves are not part of the main subject," he said.

Metaphors

Mr Doctor went in to deny the bank's claims that the overdraft charges set out in their contracts were the overall price for the current accounts they provided, and were thus exempt from the 1999 regulations.

"They are not a price under the regulations, and are not a price at all," he said.

Rejecting the idea that if a customer went overdrawn without authority they were deemed to be making a request for the overdraft facility, which was then considered by the bank, he said this was a bogus argument because the request did not actually exist.

"This is all a metaphor being played out before customers - the reality is quite different," he said.

Pointing out the difficulty of a customer working out in advance exactly what he might be charged for his overdraft, Mr Doctor offered to go through a couple of worked example for the benefit of the Judge.

"Your Lordship will have to get a wet towel to help work out the cost," he warned.

Outcome

Mr Doctor is half way through his submission to the court in response to evidence supplied by the barristers representing the eight lenders.

The hearing is expected to last until the end of next week, to allow the banks and Nationwide to respond to Mr Doctor's arguments.

It had originally been scheduled for eight days.

The outcome of the long-awaited court case could bring a significant change to the UK current account market.

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

However, the losing side is expected to appeal, possibly all the way to the House of Lords, meaning the issue may not be resolved until next year

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Banks use a "strange language" to pretend their overdraft charges are fair, the High Court has been told.

Brian Doctor QC, for the Office of Fair Trading (OFT), said the language of bank contracts did not reflect "objective reality".

He was addressing the court on the eighth day of a key test case to decide whether the OFT can rule on the validity of overdraft charges.

Seven banks and the Nationwide Building Society deny their charges are unfair.

They agreed to the test case to clarify their legal position after a mass of litigation, which has seen hundreds of thousands of consumers claim refunds totalling hundreds of millions of pounds.

'Strange world'

Barristers for the lenders have told the judge hearing the case, Mr Justice Andrew Smith, that current account customers get a package of services for which they are charged a package of prices.

But Mr Doctor accused the banks' QCs of trying to "cast a spell" over the court.

"We are entering a strange world in which the banks speak a strange language, in which customers are deemed to have done one thing by doing another," he said.

Mr Doctor argued that some banks have, in the past year, been rewriting their contracts for running a current account to avoid any application of the 1999 unfair terms in consumer contracts regulations.

These regulations would allow the OFT to rule on the fairness of overdraft charges, as long as the charges are not fees for a service provided under the core terms of the contract.

The banks maintain their charges are indeed levied in return for a service, the provision of which is fundamental to the operation of current accounts, and therefore the regulations are not relevant.

But Mr Doctor told the court that the charges were "highly unusual, both in their contractual form and the way they operate".

As such, he argued, they could be investigated under the consumer contract regulations.

"These charges are not prices in ordinary language - they are not services as normally understood."

"The charges are not in exchange for these services," he added.

'Colourful analogies'

Mr Doctor took a swipe at the arguments that have been put forward by the banks' QCs.

Describing them as some of the finest minds at the bar, he said they had failed to illuminate the issues, despite putting forward a series of colourful analogies.

These had attempted to draw comparisons between charges for bank overdrafts and charges for night clubs, hotel rooms, builders, shoe shops, mobile phones, car salesmen and university admissions.

But Mr Doctor said that these were not accurate comparisons because in reality there are no analogies for bank overdraft charges.

Earlier in the proceedings, Mr Laurence Rabinowitz QC accused the OFT of prompting a deluge of litigation against the banks in the county courts by making what he described as "ill-judged comments" about the applicability of its ruling on credit card charges to bank charges.

Mr Doctor rejected this criticism.

He said complaints to the OFT about overdraft charges had started well before the OFT's credit card ruling was published in 2006.

"The deluge of claims is due to the fact that the banks have been refunding the claims," he said.

"Yet there have been no judgements or court orders telling them to do so."

Mr Doctor went on to quote a report on the BBC news website pointing out that the sums being reclaimed were enormous, running into hundreds of millions of pounds.

Continuing investigation

However, Mr Doctor stressed to the judge that so far the OFT had not come to a conclusion as to whether bank overdraft charges were unfair or not.

He told the court it was the OFT's duty to investigate complaints about unfair contracts and that was what the regulator was doing.

But he said the OFT was still in the middle of investigating the subject, adding that, "in these proceedings, there is no consideration of whether the charges are fair or unfair".

"We have decided nothing; we are investigating complaints; the OFT has not attacked anything yet," he said.

Mr Doctor spent much of the afternoon analysing the importance of a House of Lords ruling in 2002 in which the OFT had challenged penalty charges imposed by First National Bank.

"This provides many of the answers we urge you to take up", he told the court.

Mr Doctor argued that the lesson to be drawn from the case was that charges made for an unauthorised overdraft were "not a central feature of the bargain".

In a taste of things to come, he cited a leaflet published by Lloyds TSB entitled "Avoid slipping into the red". He described the leaflet as equating going into the red with a kind of shipwreck.

"This could hardly be the main subject of the contract," he argued

"Why would one be urged to avoid the main subject of the contract?" he asked.

Outcome

The hearing continues and is now expected to last until at least the end of next week, to allow the banks and Nationwide to respond to Mr Doctor's arguments.

It had originally been scheduled for eight days.

The outcome of the long-awaited court case could bring a significant change to the UK current account market.

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

However, the losing side is expected to appeal, possibly all the way to the House of Lords, meaning the issue may not be resolved until next year.

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The Office of Fair Trading's arguments on bank charges have "several flaws", the High Court has been told.

Mr Geoffrey Vos QC was defending Nationwide, one of eight lenders who have been accused of levying unfair overdraft charges.

The OFT wants the court to rule it can decide the banks' charges are unfair under consumer contract regulations.

Mr Vos said the building society supported the banks' belief that the rules did not cover their contracts.

Nationwide and the seven banks agreed to the test case to clarify their legal position after a mass of litigation, which has seen hundreds of thousands of consumers claim refunds totalling hundreds of millions of pounds.

Fundamental feature

Mr Vos was addressing the court on the sixth day of the hearing.

The barrister told the judge, Mr Justice Andrew Smith, that overdrafts were a fundamental feature of current accounts.

Mr Vos said bank customers across the country drew on their unauthorised overdrafts to the tune of £600m a day, and this was part of the standard service used by millions of people every year.

He said the fact that a huge number of customers went into the red meant that charges for overdrafts were not an aberration, or for an ancillary service as the OFT had claimed.

The arguments put forward by the OFT, he argued, had "several flaws".

He went on to set out the specific circumstances of Nationwide current accounts. He said the building society believed there were different contractual positions for customers in credit and those in the red.

"It follows, as night follows day, that the debit customers regard their overdraft as the main part of the service," he added.

This is the crux of the legal argument.

A central part of the banks' defence is that the regulations on unfair terms in consumer contracts cannot be applied to the main or core part of a contract with a customer.

Mr Vos also denied another line of attack put forward by the OFT.

The regulator believes that as well as breaching the 1999 consumer contract regulations, overdraft charges are also unfair penalties under common law.

"The penalty doctrine cannot apply as there is no breach in our contract," he said.

'Googly'

At this point, Mr Brian Doctor QC, acting for the OFT, read out a clause from an explanatory leaflet published by Nationwide.

This said precisely the opposite - that customers who went overdrawn were indeed in breach of their contracts.

Mr Vos admitted this was a "googly" and one of the OFT's "best forensic points".

But he dismissed the issue by saying that the leaflet Mr Doctor quoted was simply wrong.

Further criticism of the OFT came from Mr Bankim Thanki QC, representing Lloyds TSB, the UK's largest current account provider.

He said the OFT was "wrong" to say that the provision of unauthorised overdrafts did not constitute a service.

"The service requires extra work with an infrastructure in place, including communicating with the customer," he added.

Mr Thanki also denied that Lloyds TSB's terms and conditions could be construed as imposing an unfair penalty charge for any breach of contract.

He said the terms and conditions contained "no suggestion of a levy on the customers for breaching obligations".

'Enormous burden'

The OFT is now expected to start outlining its case next Tuesday.

It seems certain that the case will last for at least a further two weeks once the banks have been given the opportunity to reply.

The case had originally been scheduled for eight days.

Earlier this week, the judge commented on the scale of material under consideration, describing the volume of evidence submitted as an "enormous burden".

The outcome of the long-awaited court case could bring a significant change to the UK current account market.

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

However, the losing side is expected to appeal, possibly all the way to the House of Lords, meaning the issue may not be resolved until next year.

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Barclays has told the High Court it was "throwing down the gauntlet" to the Office of Fair Trading (OFT) in the row over bank charges.

Iain Milligan QC was representing the bank, one of eight lenders accused of levying unfair overdraft charges.

Mr Milligan said that anything related to the price of running a current account could not be challenged under consumer regulations.

The OFT wants the court to rule it can decide the banks' charges are unfair.

Academic

Seven banks and the Nationwide building society have agreed to the test case to clarify their legal position after a mass of litigation, which has seen hundreds of thousands of consumers claim refunds totalling hundreds of millions of pounds.

Mr Milligan was addressing the court on the fourth day of the long-awaited hearing.

Barclays, in common with the other banks, argued that the OFT was trying to use the Unfair Terms in Consumer Contracts legislation improperly as a form of price control.

Referring to charges levied for bouncing a cheque, he said: "The whole of this debate is academic unless the OFT is going to contend that any unpaid item fee at all is unfair.

"The existence of the right itself [to levy an overdraft charge] cannot cause an imbalance in the contract," he added.

Mr Milligan spent much of the morning explaining Barclays' defence that overdraft services were part and parcel of the bank's arrangements for operating customers' current accounts.

"Barclays' case is that it is obliged to supply the whole bundle of services, for which the customer is obliged to pay the whole bundle of charges," he added.

"If there is a primary obligation to provide that good or that service, it forms part of the main subject matter of the contract," he said.

Core

A fundamental part of the argument put forward by all the banks is that the regulations on unfair terms in consumer contracts cannot be applied to the main or core part of a contract with a customer.

Mr Milligan denied the OFT's contention that Barclays and the other banks were levying fees for purely preparatory work before any service was provided, rather than providing an actual service to their customers.

"If there is at least one obligation on the bank, that is a service, and it is true for both new and old terms," he said.

Mr Milligan also denied the OFT's accusation that the way in which banks have been rewriting their terms and conditions amounted to a possible incitement to customers to commit a criminal offence, should they knowingly write cheques which exceed their account balance.

The barrister then talked the judge hearing the case through Barclays' current account terms and conditions.

"Everything is plain and intelligible", he told Mr Justice Andrew Smith.

As well as challenging the banks under the Unfair Terms in Consumer Contract Regulations, the OFT is also trying to dispute their charges as unfair penalties under common law.

But speaking for all the banks, Mr Milligan argued that this approach was invalid, as the Unfair Terms regulations - which derive from a European Union directive - had now supplanted the common law relating to penalties in this area.

'Enormous burden'

At the beginning of the day's hearing, Mr Justice Smith acknowledged that the case might now last until the middle of February.

It had originally been scheduled for eight days.

Earlier the judge commented on the scale of material under consideration, describing the volume of evidence submitted as an "enormous burden".

The barrister representing the Royal Bank of Scotland has already put forward its defence.

The other banks and the Nationwide are expected to finish their submissions by next Monday, with the OFT then having an opportunity to reply at length.

The outcome of the long-awaited court case could bring a fundamental change to the UK current account market.

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

However, whichever side loses is expected to appeal, possibly all the way to the House of Lords, meaning the issue may not be resolved until next year.

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Unauthorised borrowing is a central feature of the way current accounts work, the High Court has been told.
Laurence Rabinowitz QC was defending the Royal Bank of Scotland, one of eight lenders accused of levying unfair overdraft charges.

The Office of Fair Trading (OFT) wants the court to rule that it can challenge the lenders' fees under consumer law.

Mr Rabinowitz said overdraft facilities are a "core" feature of accounts and therefore consumer law does not apply.

Seven banks and the Nationwide building society agreed to the test case to clarify their legal position after a mass of litigation, which has seen hundreds of thousands of consumers claim refunds totalling hundreds of millions of pounds.

'Valuable service'

The barrister told the judge hearing the case, Mr Justice Andrew Smith, that the average Royal Bank of Scotland customer went overdrawn without permission three times a year.

He said providing such customers with unarranged credit was a "substantial and valuable service", which was central to everyday banking.

Without it, he argued, customers would not be able to draw on cheques until six days after they had been paid it to allow them to clear.

And if the possibility of unarranged borrowing did not exist, then debit card payments could not be guaranteed by banks.

Retailers would be forced to phone banks to check every transaction before allowing them to be processed.

Under current arrangements, banks will honour payments, even if they are not covered by an account holder's balance, and then charge the customer accordingly.

"What the bank is doing is processing his payment instructions and what the bank is doing is providing the customer with credit - that is indeed providing a service", said Mr Rabinowitz.

Crux

This issue is critical to the banks' defence.

They claim that their unauthorised overdraft charges are fees for a "core" part of the current account product, and not unfair penalties.

As a result, they disagree with the case put forward by the OFT that the charges fall foul of the regulations governing unfair terms in consumer contracts.

The OFT wants the High Court to rule that under these regulations it has the authority to decide that the charges are unfair.

Mr Rabinowitz went on to deny that the banks' current terms and conditions - some of which have been rewritten in the last few months - were a cosmetic attempt to disguise the truth.

The OFT claims the position regarding charges was more accurately reflected in historic terms and conditions.

"There has been no attempt to change the core of the contract," he said.

Mr Rabinowitz finished his main submission by addressing the issue of whether the bank charges in question might be deemed to be unfair penalties.

"So long as they are payments for services, and are not payments for breach of contract, they cannot be penalties," he added.

Consequences

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

The hearing had originally been scheduled to last for eight days.

But, as expected, Mr Justice Andrew Smith told the court he thought there was a strong likelihood of a "substantial overrun".

He also commented on the scale of material under consideration, describing the volume of evidence submitted as an "enormous burden".

An initial ruling is still expected around Easter.

However, whichever side loses is expected to appeal, possibly all the way to the House of Lords, meaning the issue may not be resolved until next year.

The outcome of the long-awaited court case could bring a fundamental change to the UK current account market.

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The consumer campaign against bank charges stirred up "a hornets' nest", a barrister has told the High Court as a long-awaited test case got under way.
Laurence Rabinowitz QC is defending the Royal Bank of Scotland Group, one of eight lenders that have been accused of levying unfair overdraft fees.

The Office of Fair Trading (OFT) wants the court to rule that it can challenge the disputed current-account charges.

The firms reject the OFT's claim that the fees are unfair under consumer law.

The outcome of the case could bring a fundamental change to UK High Street banking.

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

Some industry experts have warned it could mean the end of free banking.

'Torrent' of claims

Seven banks and the Nationwide building society agreed to the test case to clarify the legal position after a mass of litigation which has seen hundreds of thousands of consumers claim refunds running into hundreds of millions of pounds.

"The background to the case is the torrent of claims lodged in the county courts and the deluge of complaints to the Financial Ombudsman Service," said Mr Rabinowitz.

The barrister said the OFT was itself partly responsible for the scale of the consumer revolt after "ill-informed" comments it made after an earlier ruling on the unfairness of credit card charges in 2006.

He argued the OFT's statement at the time which claimed that the same principles applied to current accounts was "unfortunate", since it was made before the regulator had even started its formal investigation into overdraft charges.

"A hornets' nest had been disturbed," he told Mr Justice Andrew Smith, "and something had to be done."

Price control

The main area of legal argument is about the application of the 1999 regulations that govern unfair terms in consumer contracts.

The OFT believes these give it the authority to decide if bank overdraft charges are unfair and too high.

The eight lenders, who provide about 90% of all current accounts in the UK, deny this.

They say the regulations cannot be applied to the price they charge for offering an overdraft facility, or to the core terms of the current account service they give their customers.

"The regulations are not a mechanism of price control - but the OFT thinks they are," Mr Rabinowitz said.

Long hearing

Both sides have submitted in advance their basic arguments to the judge.

The civil hearing will not involve witnesses giving evidence or cross-examination.

But with each bank expected to take up to two days each to submit its arguments in detail, the hearing is likely to last for several weeks, longer than the eight days originally anticipated.

The High Court judge hearing the case, Mr Justice Andrew Smith was called to the bar in 1974, and appointed a QC in 1990.

He was made a High Court judge in the Queen's Bench Division in 2000, and was the Presiding Judge of the North Eastern Circuit from 2003 until 2006.

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