Claim Bank Charges Back

The latest round in the legal row over the legality of bank charges for unauthorised overdrafts started today, as banks took their appeal to the House of Lords.

Seven banks and a building society are asking the law lords to overturn rulings by the high court and court of appeal that the fees are covered by "unfair contract" rules and can be scrutinised by the Office of Fair Trading (OFT).

Banks have been charging consumers up to £39 every time they bounce a cheque or refuse a standing order or direct debit because of a lack of funds, although critics of the system say the actual cost incurred by the institutions could be as little as £2. The fees are estimated to earn current account providers about £2.6bn a year.

After thousands of consumers reclaimed the charges by threatening to take their banks to court, a test case was brought between the OFT and Abbey, Barclays, Clydesdale, Halifax Bank of Scotland and Lloyds TSB (which are now part of the same group), HSBC, Royal Bank of Scotland Group and Nationwide building society.

The court found in favour of the OFT, then earlier this year a ruling by the court of appeal backed it up and it looked as though current account providers could be forced to return up to £1bn to consumers.

This could be the final chance the banks have to get the decision overturned and avoid having to cut their charges and refund customers. The appeal is set to last three days, but the decision is unlikely to be published until the autumn.

In the meantime, the banks will be able to continue charging, and tens of thousands of customers will have their appeals kept on hold.

A waiver granted by the Financial Services Authority (FSA) in the summer of 2007, when the test case was first announced, means banks and building societies are allowed to hold on to any complaints relating to the case.

Consumer groups had hoped the banks would accept the appeal court's ruling. The chief executive of Which?, Peter Vicary-Smith, said: "It is disappointing that nearly two years since this saga began, little has changed for the millions of consumers being hit with these charges."

He added: "If you're struggling with basic living costs such as rent and utility bills then you may be eligible to get your claim fast-tracked under the terms of the waiver. The FSA must take action against any bank ignoring the financial plight of its customers."

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Consumer campaigners want the Financial Services Authority (FSA) to crackdown on banks who have sent in debt collectors after customers who have disputed unfair overdraft charges.

These customers have had their complaints shelved for two years by the banks because of a waiver authorised by the FSA.
This waiver has left thousands of current account customers who disputed rip-off bank charges stuck in limbo, while racking up fees and interest.

Some are being chased through the courts, hounded by debt collectors and are having black marks put on their credit history.

The waiver was put in place by the FSA on July 27, 2007. Initially, it was for just 12 months while a court case between the banks and the Office of Fair Trading (OFT) was argued.

However, almost two years later, this case is still being fought, despite High Court and Appeal Court judges ruling the OFT can decide on whether bank charges are a breach of unfair contract terms.

Next Tuesday will see the latest twist in the saga as the banks take their case to the House of Lords. The result of this is not likely to be known for several months at best. This will pile on the misery for customers who have racked up thousands of pounds worth of charges, which they claim had sent them massively overdrawn.

Marc Gander, from the Consumer Action Group, says: 'It is the banks that sought the shelter of the FSA and wanted the waiver to be placed on complaints and it is the banks who wanted to contest the charges in the court and get a legal ruling on them.

'It is unacceptable that they should be involved in litigation against their customers and chasing them for charges that are in dispute when they have acknowledged there has been no decision on whether the charges are lawful.'

Banks have to resolve cases where there is financial hardship.

Under the terms of the waiver, banks can still look at complaints, but they choose not to.

The British Bankers' Association insists it is within its rights to pursue customers who have not repaid debts.

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Almost one million people have had their claims for the return of their bank overdraft charges frozen since July 2007.
Figures obtained under the Freedom of Information Act (FoI) from the Financial Services Authority (FSA) reveal the scale of the backlog.

Nearly 973,000 complaints have been put on hold by the UK's banks, with nearly 27,000 stayed in the UK courts.
The figures were obtained by the consumer campaign group Legal Beagles.

"I am surprised - it's huge," said Nick Spooner of Legal Beagles.

"It's far more than I thought," he added.

Long process

When the volume of claims from disgruntled bank customers reached a crescendo in the summer of 2007, the authorities and the banking industry sought a joint solution.

The main banks and the Office of Fair Trading (OFT) agreed to start a High Court test case to resolve if bank charges were fair and legal.

In the meantime, the FSA allowed the banks and the Financial Ombudsman Service (FOS) to put any fresh claims on hold, with the judiciary also allowing county court judges to stay any new cases that were lodged in the courts by claimants.

The legal process has, however, taken far longer than originally anticipated.

After failing to overturn the OFT's jurisdiction in the matter at both High Court and Appeal Court level, the banks are now planning to appeal to the House of Lords later this year.

They wish to challenge the current High Court and Appeal Court rulings that the OFT, under the 1999 Unfair Terms in Consumer Contracts regulations, can decide if their overdraft fees are fair or not.

"Most of the claimants would have been aware at the time they complained that their complaints would have been automatically put on hold," said Mr Spooner.

"Surely the figure must represent the highest number of consumer complaints about a single issue?"

Next year?

The second stage of the litigation, which will decide the actual fairness or otherwise of the banks' charges, is unlikely to start before 2010.

The OFT recently said its own investigation into that point might not be to be finished until the end of this year.

That means some bank charge claimants might eventually have to wait for three years before being able to pursue their currently frozen claims.

"You could fill Wembley stadium ten times over with the people waiting on bank charges claims," said Which? lawyer Chris Warner.

"It's a huge issue and has to be settled as quickly as possible."

The banks have never admitted how many claims they settled before new cases were put on hold in the summer of 2007.

But estimates by the BBC, based on information from the banks' annual reports for 2007, suggested that in the course of that year, the banks paid out £784m to about 378,000 customers.

Many of these claims involved customers going to their local county courts, with the banks then typically settling and paying up, rather than running the risk of a local judge deciding that their charges were illegal.

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An investigation into the fairness of unauthorised overdraft charges will be narrowed to just three banks, the Office of Fair Trading has announced.

The OFT will concentrate on the terms and conditions set by Lloyds TSB, HSBC and the Clydesdale Bank in an attempt to speed up the investigation.

The investigation is running in parallel with a long-running legal test case on the same issue.

This legal case still involves seven banks and one building society.

In addition to Lloyds TSB, HSBC and the Clydesdale Bank, the other financial institutions involved in the case are Abbey, Barclays, RBS NatWest, HBOS (now part of Lloyds Banking Group) and Nationwide Building Society.

Key conditions

The OFT has already made it clear that its own investigations are likely to conclude that overdraft fees are unfair.

It may argue that the charges should therefore be reduced substantially from their current levels, which sometimes amount to more than £30 for bouncing a cheque.

But, as the investigation continues, the OFT said that the terms and conditions of three of the banks were representative of all of them and so it would be conducting a "more focused" inquiry.

"The investigation into the other banks' terms is merely on hold and the OFT has stressed that no banks' terms have been given a clean bill of health," an OFT spokesman said.

It expects to publish its findings on the fairness of overdraft charges by the end of the year.

The latest move by the OFT has been welcomed by supporters of both sides of the dispute.

"The OFT believe that by looking at a representative sample of bank terms and conditions, the investigation process will be streamlined and shortened," said a spokesman for the British Bankers' Association.

"The banks certainly welcome this initiative and we will continue to co-operate fully and constructively to the ongoing inquiry."

Louise Hanson, head of campaigns at the consumers' association Which?, said: "We are pleased that the OFT is doing whatever it takes to bring this saga to an end as quickly as possible.

"We welcome its assurances that all the banks are still within its sights and we remain confident that the unauthorised overdraft charges of all banks will be found to be unfair."

Test case

In the meantime, the long-running test case surrounding the issue reached a new stage this week when the banks were given permission by the House of Lords to appeal against a recent Appeal Court judgement on bank charges.

In March, the Appeal Court upheld a High Court decision that the fairness of overdraft charges could be investigated by the OFT.

The first stage of the litigation has already lasted for 18 months.

During this time nearly all new claims for the return of bank charges have been put on hold in the county courts and at the Financial Ombudsman Service.

Behind the scenes, both sides have been preparing their arguments for the eventual second round of court hearings, in which the fairness of bank charges will be decided.

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Last month, the Court of Appeal agreed with the High Court's decision that charges can be subject to 'unfair contractual terms' laws. This marked a major victory for bank charge reclaimers as, provisionally, the Office of Fair Trading has suggested it thinks they are unfair.

Martin Lewis, creator of MoneySavingExpert.com, says: "It's time the banks gave up and paid out. Hundreds of thousands of people are waiting to get money back that's been unlawfully taken from their accounts, without their permission. Both the High Court and the Court of Appeal have already said bank charges are governed by fairness rules and the OFT has said it provisionally thinks charges are unfair."

"This is a supertanker and it's only heading in one direction. The banks can't stop it, but they're doing all they can to slow the process down. That's a shame as there's nothing the economy needs more right now than cash put into real people's pockets."

"While this means it's likely the FSA will extend its hold on reclaiming, that shouldn't stop people putting in their claims as soon as possible, to put them ahead in the queue. Plus for anyone in financial hardship the hold does not apply, and payouts of £1,000s are happening regularly."

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The UK's banks have been given permission by the House of Lords to appeal against a recent Appeal Court judgement on bank charges.

In March the Appeal Court upheld a High Court decision that the fairness of overdraft charges could be investigated by the Office of Fair Trading (OFT).

The latest move will extend the long-running legal test case over the fairness of bank charges.

The first stage of the litigation has already lasted for 18 months.

During this time nearly all new claims for the return of bank charges have been put on hold in the county courts and at the Financial Ombudsman Service.

Marc Gander of the Consumer Action Group (CAG) said he was not at all surprised by this latest development.

"We expect them to lose and when the process is finally exhausted we hope they will come quietly and return £30bn to the High Street," he said.

Rulings

Last year, Mr Justice Andrew Smith ruled in the High Court that the OFT had the power to scrutinise the fairness of bank charges, under the 1999 Unfair Terms in Consumer Contracts regulations.

The seven banks, along with the Nationwide building society, which were party to the test case with the OFT, appealed against the ruling.

However, their arguments were firmly rejected by three Appeal Court judges, led by the Master of the Rolls, Sir Anthony Clarke.

Handing down his judgement, he suggested the banks might be wasting their time taking the issue to the House of Lords because four judges had now come to the same conclusion.

The banks clearly did not agree.

Behind the scenes, both sides have been preparing their arguments for the eventual second round of court hearings, in which the fairness of bank charges will be decided.

The OFT has already made it clear that as a result of its own investigations it does consider that overdraft fees are unfair.

It may argue that the charges should therefore be reduced substantially from their current levels, which sometimes amount to more than £30 for bouncing a cheque.

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Banks have been given the right to appeal against a court ruling that could have seen more than £1bn in unauthorised overdraft charges returned to customers.

In a blow to The Independent's bank charges campaign, the House of Lords has ruled it is prepared to hear an appeal from seven banks and building societies who maintain the charges are not subject to a consumer law on fairness.

The decision overturns a ruling by the Court of Appeal that the banks should not be able to take their two-year battle against the Office of Fair Trading (OFT) to the highest court in Britain.

In February, the Court of Appeal upheld a High Court ruling last year that the charges fell under the 1999 Unfair Terms in Consumer Contracts legislation, as the OFT had argued. Campaigners had hoped one million people whose cases had been frozen pending the case outcome would soon receive a payout.

The institutions – Abbey, Barclays, Clydesdale, HBOS and Lloyds TSB (now part of the same group), HSBC, RBS and Nationwide Building Society – are waiting for a date for the hearing.

The OFT brought the test case in April 2007 after thousands of customers started demanding refunds for the charges. People who go into unauthorised overdraft or breach their agreed limit can be charged as much as £35 for a single bounced payment, although the cost to the banks could be as little as £2.50.

Prior to the case, banks had paid out £559m in refunds. Martin Lewis, the creator of moneysavingexpert.com, who has run a campaign against the charges, said: "It's time the banks gave up and paid out. Both the High Court and the Court of Appeal have already said bank charges are governed by fairness rules and the OFT has said it provisionally thinks charges are unfair."

The Which? personal finance campaigns manager, Doug Taylor, said: "It's outrageous that public money is being used to drag this saga out for even longer when the banks should accept the Court of Appeal's decision and draw a line under this issue once and for all."

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Banks have been given the go-ahead to stage an appeal in the House of Lords in a desperate bid to block an investigation into the legality of bank charges.

Six high street banks and Nationwide Building Society will try to reverse a ruling made last month by the Court of Appeal, which found that the Office of Fair Trading (OFT) should be allowed to assess the fairness of unauthorised overdraft charges.

Banks and building societies could lose up to £3.5 billion a year in revenue if the charges are deemed illegal, according to the OFT.

The court case, which began 2007, will now reach the highest court in the land as banks fight to prevent a bill of up to £21 billion from customers reclaiming charges going back six years.

A ruling is not now expected before the end of the year.

The decision is another major set back for tens of thousands of current account customers who have already filed claims to have bank charges reimbursed.

The Financial Services Authority issued a waiver in 2008 allowing banks to freeze ongoing claims while the court case continues.

It is estimated that banks have already refunded £1 billion of bank charges in cases settled before the waiver was put in place.

Doug Taylor, of Which?, the consumer association, said: “It is outrageous that public money is being used to drag this saga out for even longer when the banks should accept the Court of Appeal’s decision and draw a line under this issue once and for all.

“Not only are the banks prolonging the misery for their customers, many of whom are struggling to make ends meet, they are doing further damage to their already battered public image.”

Banks charge customers up to £39 for going overdrawn. Campaigners argue that the charges are disproportionate. It is estimated that an unauthorised overdraft costs banks £2.50 to administer.

Rip-off banks face being forced to pay refunds totalling more than £10billion to customers following a landmark court victory.

The High Court has ruled the Office of Fair Trading (OFT) has the right to decide whether charges of up to £38 for busting overdraft limits are unfair.

The decision clears the way for the OFT to rule that millions of Britons have been overcharged for going overdrawn or bouncing a cheque.

In theory - assuming the banks do not appeal to the House of Lords - refunds dating back at least six years could be reclaimed.

The news was welcomed by campaigning consumer groups as a victory for ordinary people.

However, some fear the banks will retaliate by imposing charges on all current account customers - ending the current model of supposedly free banking.

The decision by the High Court is a vindication of attempts by the OFT to curtail excessive bank charges.

It comes on the heels of the Daily Mail's Fair Play on Charges campaign, which has highlighted sky-high bank charges and helped thousands to claim refunds.

The consumer group Which? called on the banks to start paying refunds with immediate effect.

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 banks have generated big profits by issuing warning letters linked to overdrafts and bounced payments - each charged at £25 - like confetti.

Anger has been fuelled by reports that people, including students and pensioners, have been hit with bills of £100 or more after just going a few pence into the red.

The OFT calculates that banks and building societies have been making £2.6billion a year from unfair and excessive overdraft charges.

The High Court case has delivered a day of reckoning that means as many as 10 million people will be entitled to a refund, generating a total bill likely to top £10billion.

Such a huge bill would be a hammer blow to the banks which are reeling from multi-billion pound losses linked to reckless borrowing and expansion.

Martin Lewis, founder of the consumer revenge site MoneySavingExpert.com, said: This is a fantastic day for bank charge reclaiming. All gates to victory have now been unbarred.'

He said it now only requires the OFT to make a ruling that the charges are unfair - a decision expected later this year - in order to trigger a tidal wave of refund claims.

There are millions of claims already in the pipeline at banks and building societies. Currently, the firms currently have the right to put a hold on settling them until the legal case is concluded.

However, consumer experts said it would be wise for people to make their refund claims as early as possible to ensure they are among the first in the queue for a pay-out.

Advice and template letters on how to make a claim are carried on the Daily Mail's sister website Thisismoney.co.uk.

OFT officials have made clear that the banks would have no reason to use the loss of the court case as an excuse to start imposing monthly fees on current accounts.

However, many analysts feel that the banks will simply ignore this stance.

Michelle Slade, of the website Moneyfacts.co.uk said: 'Penalty charges are a significant revenue stream for the banks, which they can ill afford to lose at the moment. If the OFT does move to force the banks to lower charges, we could see increased costs elsewhere.

'The option that some banks may now levy an account fee is a real possibility.'

Kevin Mountford, head of banking at moneysupermarket.com, said: 'It seems the end of free banking could well be nigh.

'If banks have to reduce penalty charges they are likely to introduce a regular charge on current accounts, thus mirroring the system used most consistently across the world.'

Such a system could involve a monthly fee to cover a fixed number of direct debits, cheques and cash machine withdrawals. Customers would then be charged additional fees if they go above this number.

The British Bankers' Association gave no indication as to whether its members will appeal against the High Court ruling.

It said: 'These are important points of law. The courts can now go on to clarify the fairness of charges.

'Before that can happen the OFT has to provide the courts with its views on how charges should be assessed.'

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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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