Financial Times

This morning, Tom Brennan, a recently qualified barrister, will be back in court, fighting the latest round in the increasingly high-profile legal battle between banks and their customers over overdraft charges.

Mr Brennan's grievance centres on the extent of the charges - totalling more than £2,000 - which were taken from his account with NatWest after he went into the red and then exceeded an overdraft limit while a law student.

That broad complaint, about the level of charging, is shared with thousands of other bank customers. Spurred on by consumer groups, they have also registered complaints and/or filed legal claims. As a result, small claims courts, up and down the country, are stuffed with these actions.

But while many consumers have subsequently accepted settlement offers from their banks (usually involving repayment of the charges without admission of liability), Mr Brennan believes there are issues which should be given to a judge to decide. Natwest, on the other hand, says that it has more than satisfied Mr Brennan's claim by fully repaying the charges. It wants the judge to throw his case out.

In one respect, the omens for Mr Brennan - and other consumers who would like a judicial ruling on the fairness of overdraft charging - do not look good. The only case to find its way to a courtroom so far was decided last week in favour of the banks.

This involved a Lloyds TSB customer, Kevin Berwick, who represented himself in the proceedings in Birmingham County Court. There, he argued, the level of overdraft charges either breached the protections that governments have put in place against unfair contract terms, or failed to comply with the "reasonableness" criterion required for service fees under the Supply and Services Act 1982.

But the judge disagreed. For the protections against unfair contract terms to kick in, a contract - or a breach of one - needs to be at stake. But District Judge Cook said that he believed that "if a bank declines to accept the request [to run an overdraft] it is not in breach of contract to the customer. . . and nor is the customer in breach of contract having made the request in the first place".

He also turned down the alternative argument, that the overdraft fees were instead really service charges, and as such unreasonable. Here, the judge decided that the whole package of services provided by the bank to its customers needed to be considered, and weighed against the cost overall. Isolating overdraft charges, and comparing these with the costs to the bank of running these facilities only, would be a "flawed" approach, he thought.

The Birmingham judgment is not binding on other courts, so consumer advocates are still urging consumers to pursue claims filed on the same breach of contract/unfair terms basis.

Mr Brennan, meanwhile, has another string to his bow. He wants to argue that the banks are in breach of a statutory duty not to treat consumers unfairly. This would be a tort claim for which, he maintains, he should be entitled to seek damages. Accordingly, Natwest's efforts to settle his case by paying back the charges would not amount to full satisfaction.

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