Claim Bank Charges Back

Bank charges can now be assessed for fairness by the Office of Fair Trading after the High Court ruled in its favour today.

The announcement could mean bank customers will be able to reclaim billions of pounds in punitive bank charges later this year, if the OFT decides the charges are unfair as expected.

The ruling comes at the end of an appeal case brought in October last year by the eight High Street banks following the High Court's similar ruling in favour of the OFT the previous summer.

However, the banks have the right to appeal this judgment yet again to the House of Lords, potentially delaying the OFT's investigation by a further six months to a year.

The British Bankers' Association confirmed the banks have put in a request to see if they can appeal to the House of Lords, but stressed this does not mean they plan to proceed.

A spokesperson said: 'You have to ask if you can appeal before you decide if you are going to appeal. It's just a legal process. The banks are keeping their options open.'

Even if the banks do not appeal, consumers will not be able to reclaim their bank charges until the OFT delivers its final assessment on whether the charges are fair.

It has already begun its investigation into the overdraft charges and, if banks do not hold up the process further, it expects to report its findings later this year.

The OFT said in a statement: 'The Court found that these terms are not part of the core or essential bargain between a consumer and their bank, and therefore consumers do have protection under the Unfair Terms in Consumer Contract Regulations for these terms. '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.'

However, it warned the process would be complex as the investigation involves each bank's terms and conditions over the past six years.

Banks have claimed today's ruling could spell the end of free banking in the UK as the banks could lose up to £2.6bn a year in lost revenue as a result. However, campaigners argue it is wrong to subsidise fee free banking by treating other customers unfairly.

Furthermore banking industry experts doubt that banks will pull fee free bank accounts due to the huge cross-selling opportunities they offer compared to their relatively low cost to run.

Banks could have to refund billions in bank charges levied over the past six years. RBS is already planning to proactively refund all bank charges to its customers if it eventually loses its case against the OFT.

Marc Gander, head of the bank charges campaign organisation Consumer Action Group, said the banks will think twice before fighting today's judgement.

He said: 'The only thing that would stop the banks appealing is their public image. To drag this on yet another year by taking it to the House of Lords after delaying the case a year already, I think would mark them out as the people's enemy when their reputation is bad enough already.

'I'm not sure they would have the gall to do that. They may be so reluctant to draw this on that they may throw the towel in.'

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Banks and building societies could be forced to return billions of pounds to consumers after a court threw out their appeal over unauthorised overdraft charges.

The court of appeal ruled that fees for unauthorised overdrafts and bounced cheques are subject to regulation by the Office of Fair Trading (OFT) under "unfair contract" rules, clearing the way for the watchdog to set a legal maximum on the fees which currently earn banks around £2.6bn a year. The ruling could result in them being forced to return up to £1bn to consumers.

Banks had been charging up to £39 for a bounced cheque, standing order or direct debit, although critics of the system say the actual cost incurred by the institutions could be as little as £2.

The ruling follows a test case last year between the OFT and eight current account providers concerning fees for unauthorised borrowing and bounced cheques, which concluded they were covered by the Unfair Terms in Consumer Contracts Regulation of 1999.

Since then many current account providers have adjusted their charging structure and reduced their fees. But many still charge more than £12, which the OFT set as a maximum default charge on credit cards and could introduce to the current account market.

In today's judgment the master of the rolls, Sir Anthony Clarke, sitting with Lord Justices Waller and Lloyd, 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.

Waiting on an appeal

Although the banks could apply to the law lords for permission to appeal to the House of Lords, they were not given leave to appeal, a point welcomed by Doug Taylor, a campaigner for consumer group Which? who said he hoped the banks would throw in the towel.

"I think that is a clear sign it is a fairly straightforward case," he said. "In the context of the decline in [the banks'] reputation it would be bizarre if they decided to appeal. For them to engage in spending more money to defend a lost cause would be unfortunate to say the least."

Lawyers for Which? said the banks had 28 days to decide if they would make a further appeal, but in the meantime the OFT will continue to examine the charges. Consumers who have had their requests for fees to be returned put on hold since the test case will have to wait for the OFT's ruling before they know how much they can reclaim.

The OFT welcomed what it called "very clear confirmation" that it could assess current account terms and conditions on fairness. "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," it said.

An OFT spokesman added: "The judgment means we can go forward and we are now looking to go back to the banks to say whether we think the charges are fair." A decision on fairness is expected later this year.

Consumer Victory

Martin Lewis, the founder of MoneySavingExpert.com, who alongside Guardian Money has been a campaigner against the charges, said it was a "fantastic day" for consumers.

"All gates to victory have now been unbarred; there is now just a tiny latch left to be unlocked," he said. "The smiles on the OFT's faces in court shows it is highly likely it will find that charges are unfair. After that I would hope that within the next year everyone who has had charges unfairly taken from their bank account will get them back."

Lewis said 5.6bn template letters had been downloaded from his website by consumers seeking a refund from their current account providers. A waiver put in place in the summer of 2007 allowing banks and building societies to delay dealing with the letters remains in place, and the Financial Services Authority has not indicated when it will be lifted.

However, Which? said people should continue to send in their requests so they are first in the queue if the OFT does force account providers to repay the fees. Thousands of consumers are believed to be stuck in the court system awaiting the final outcome of the case and payouts, which in some cases could amount to thousands of pounds.

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The Office of Fair Trading has been given the green light to establish once and for all whether bank charges are unfair.

Thousands of savers came a step closer to finding out if they will be able to reclaim up to a billion pounds of unauthorised overdraft fees, after Britain's biggest banks lost an appeal today at the High Court.

The ruling paves the way for an investigation that could cost the banks up to £2.6 billion in lost revenue a year and lead to them having to make refunds of up to £1 billion.

After a 13 month long battle, consumer groups have urged the banks to admit defeat. The banks, however, could appeal again, this time to the House of Lords, delaying an investigation and holding up the cases of thousands of claimants.

Peter Vicary-Smith, chief executive of Which?, the consumer organisation, 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 latest ruling gives the OFT the green light to decide if bank overdraft charges are fair or not. It follows a test case last year between the OFT and eight current account providers concerning fees for unauthorised overdrafts and bounced cheques.

In April, the OFT won the first stage after the High Court rejected the banks’ claim overdraft charges fell outside the scope of the 1999 Unfair Terms in Consumer Contracts regulations. This prompted the banks to ask the Court of Appeal to overturn that decision.

Today, the three Appeal Court judges rejected this and said the issues should now be resolved by an OFT assessment of fairness.

Consumer groups fear that, as the banks struggle with their own huge financial problems, they may be unwilling to accept the judgment.

The banks are concerned that if the OFT is allowed to proceed, it could cap the fee for bouncing cheques or exceeding overdraft limits at a far lower rate than the currently charged. This will be similar to the approach already taken for credit card late payment fees, which resulted in charges being slashed from up to £35 to £12.

Many current account providers have already adjusted their charging structure and reduced their fees, ahead of a decision, however the OFT has not given any indication of how low a cap could be set.

The regulator could also force banks to refund the difference between the charges they imposed and a new acceptable rate of penalties.

Analysts have warned that this could bring an end to free banking, with consumers instead having to pay a monthly fee or a fee for each transaction they make.

Since the beginning of 2006 hundreds of thousands of bank customers have tried to reclaim their charges on the grounds that they were too high and unfair. UK banks have paid an estimated £784 million in out-of-court settlements to customers who have reclaimed up to six years' worth of overdraft charges.

The Financial Services Authority has given the banks permission to suspend refunds until the test case is completed. Thousands more cases launched in the county courts or with the Financial Ombudsman Service will also remain on hold.

The banks have 28 days to decide if they will make a further appeal.

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An appeal by eight banks, against a High Court ruling that a regulator can investigate the fairness of overdraft charges, has been thrown out.

The Appeal Court ruled that the Office of Fair Trading (OFT) has the power to investigate the issue of bank charges.

However, the banks have decided to appeal further to the House of Lords, against the appeal judges' advice.

Tens of thousands of claims currently on hold in the English and Scottish legal systems will stay frozen.

Banks continue fight

Sir Anthony Clarke, Master of the Rolls, dismissed the banks' appeal and told them they should now allow the OFT to decide whether their charges were fair or not.

He said four High Court judges had now come to the same conclusion on the issue of the OFT's jurisdiction.

However, the British Bankers' Association (BBA) said its members still disputed the decision of the High Court and now the Appeal Court.

"The banks continue to believe that the Regulations do not apply to these type of charges," a spokesman said.

"The banks will apply to the House of Lords for permission to appeal the Court of Appeal's decision.

"The banks will work with the OFT to ensure the next stages in the test case process are progressed as quickly as possible," he added

Unanimous decision

The banks had argued that their overdraft charges fell outside the scope of the 1999 Unfair Terms in Consumer Contracts regulations.

However, the three Appeal Court judges rejected this view.

"We have unanimously concluded that the application should be refused," said Sir Anthony.

"The issues should now be resolved by an OFT assessment of fairness," he added.

He refused the banks leave to appeal further, but they have decided to appeal directly to the House of Lords anyway.

Bank charges campaigners were delighted with the Appeal Court ruling.

Chris Warner, of the consumers' association Which?, said: "It is great to see the Court of Appeal being so unequivocal in their guidance to the banks that this is the end of the road."

"They should now let the OFT do its job. The banks have the right to appeal to the House of Lords but the Court of Appeal could not have been clearer that that is not the appropriate way to go forward," he added.

County courts

The litigation between the OFT and eight banks started in July 2007 and now looks likely to run into 2010.

If the OFT ultimately wins the case, several billion pounds could potentially be refunded to millions of bank customers.

Since the test case started, tens of thousands of claims for the return of overdraft charges have been frozen in the English and Scottish legal systems, waiting for a final decision on whether bank overdraft charges are fair or not.

In 2007, when the campaign for the return of overdraft charges was threatening to swamp the court system, the UK's banks were estimated to have repaid more than three quarters of a billion pounds to about 378,000 customers.

A further 65,000 claims are known to be on hold in the English county courts alone.

Sir Anthony Clarke said it was "sensible" that the stay on county court proceedings should remain in place until a final decision on fairness of bank charges was made.

All county courts have now been sent a letter to this effect, from the deputy head of Civil Justice in England & Wales, inviting local judges to continue the existing stays, until either the House of Lords or the OFT's investigation come to a conclusion.

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The Appeal Court is deciding only whether the Office of Fair Trading (OFT) has the power to assess the current terms and conditions for fairness. The court will not decide whether or not the charges are fair.

At least 65,000 people have had their claims for the return of overdraft charges frozen in the court system. The legal claims were halted in July 2007 by a general stay on overdraft cases, imposed by county court judges. The stay was part of a wider agreement to allow a High Court test case to decide if bank overdraft fees are fair.

A win for the OFT would allow it to assess the banks’ terms and conditions and decide what constituted a fair charge for entering into an unauthorised overdraft. It would also pave the way for consumers to claim money back from their banks. In April 2008 a judge found in favour of the OFT, allowing it to assess the banks’ terms and conditions for fairness.

The banks argue that the Unfair Terms in Consumer Contract Regulations legislation was designed to protect consumers. The British Bankers’ Association said this legislation stopped people “putting silly and unfair clauses into contracts" – such as a £1m penalty if you are late with one payment.

The Court of Appeal verdict will not be the end of the matter. Even if the Appeal Court sides with the OFT and concludes that overdraft charges can be assessed for fairness, there will be no decision on whether the fees are fair or not.

If the banks are unsuccessful in the Appeal Court, they have the option to take the appeal all the way to the House of Lords.

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The High Court is due to give its verdict today on the appeal made by eight High Street banks against its ruling on bank charges last year.

The appeal case, started in October of last year, is an attempt by the banks to overturn the decision made by the Court that punitive bank charges can be assessed for fairness by the Office of Fair Trading (OFT).

If the banks lose the appeal, bank customers will not be able to reclaim their charges immediately, but the OFT will have the green light to assess bank charges for fairness under the Unfair Terms in Consumer Contract (UTCCR) regulations.

If they find the charges are unfair, customers should then be able to reclaim from their bank, this follows a hold put on reclaiming since the case was announced in summer 2007.

If the banks win, it could spell the end of the entire consumer battle to reclaim billions in unfair bank charges.

That is if both parties decide not to appeal the decision yet again, however.

The banks could put in another appeal to the House of Lords should they lose a second time, which would drag any potential end to the case into 2011. If the OFT loses, it is likely it will get the opportunity to question the appeal decision.

Marc Gander, head of the bank charges lobby organisation Consumer Action Group, said he is sure the OFT will be given this option.

He said: 'I'm sure the judge would grant the OFT the right to appeal in the very unlikely event it loses. It would even things up: each side would then have appealed one of its rulings.

'The only thing that would stop the banks appealing is their public image. To drag this on yet another year by taking it to the House of Lords after delaying the case a year already, I think would mark them out as the people's enemy when their reputation is bad enough already.

'I'm not sure they would have the gall to do that. They may be so reluctant to draw this on that they may throw the towel in.'

A spokesperson for the British Bankers' Association said they didn't want to second-guess the case before the judgment tomorrow. The OFT also declined to state how it will act depending on the announcement.

The OFT announced originally it was taking the High Street banks to court in July 2007 after a wave of public disquiet over bank charges, which could be up to £38 for a minor incursion into an unauthorised overdraft.

The Financial Services Authority granted banks a waiver at this time, allowing them to put all claims on hold until the OFT test case in the High Court is completed. All reclaims have been stalled until the High Court case has been settled, unless a customer can prove they are suffering from financial hardship as a result of the charges.

Either side of the battle has the right to take the case to the High Court, followed by the European Courts until they could be forced to cede defeat. If so, it could take years for the case to conclude.

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It has been revealed that at least 65,000 people have had their claims for the return of overdraft charges frozen in the court system.

The figures, obtained from the Ministry of Justice, have been made public by campaigners for the first time.

The legal claims were halted in July 2007 by a general stay on overdraft cases, imposed by county court judges.

The stay was part of a wider agreement to allow a High Court test case to decide if bank overdraft fees are fair.

Litigation

A year and a half since the 2007 agreement, the High Court litigation, agreed between eight banks and the Office of Fair Trading (OFT), is still running.

The figures on the number of frozen cases, as of last November, were supplied to the campaign group Legal Beagles by the Ministry of Justice (MoJ).

A spokesman for the group, Julian Siddle, said the litigation agreement, which also allows banks to defer dealing with complaints made directly to them, was very one-sided.

"People are still incurring charges even though banks have obtained a waiver, so they don't have to deal with new complaints," he said.

A decision is expected soon on an appeal by the banks, who have objected to last year's initial High Court ruling that the OFT had the authority to decide if their charges were fair or not, under the consumer contract regulations.

But the second stage of the overall test case, on the main issue of whether or not the banks' charges are in fact fair, has yet to start.

Cases stayed

Until the summer of 2007, the UK's main banks had been besieged by an unprecedented consumer revolt.

Hundreds of thousands of disgruntled customers were suing their banks in the county courts, usually successfully, for the return of the overdraft fees they regarded as excessive and unfair.

In most cases the banks gave in to these claims, preferring to refund £784m to an estimated 378,000 customers in 2007, rather than run the risk of adverse judgements in any courts.

But the stay, a policy that has been agreed by individual county court judges, meant that unresolved and new cases were put on hold until a final High Court ruling.

"Pending the final outcome of this matter, the management of individual cases in the county courts is a matter for county court judges to consider based upon the circumstances of each individual case," said an MoJ spokesman.

"However, at the hearing in May last year, Mr Justice Andrew Smith confirmed that the reasons behind the original stay on such proceedings continue to apply, at least until the disposal of the appeal."

Piling up

Nick Spooner of Legal Beagles said many other cases, lodged with the Financial Ombudsman Service (FOS), were also on hold.

And the MoJ figures were, in his view, probably an underestimate.

"The 65,000 figure only applies to the cases which the MoJ was absolutely sure related to claims against banks for the return of overdraft charges," he said.

"There are others that the MoJ couldn't pick up when searching its data base, because of the different ways in which people had written their claims.

"Meanwhile thousands more claims are piling up with the banks themselves," he added.

The OFT has estimated that in 2006 12.5 million people paid some sort of overdraft charge.

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NatWest staff are urging customers to reclaim bank charges while its lawyers continue to defend the controversial penalties, The Times has learnt.

Consumer groups have branded the bank “hypocritical” after an investigation by Times Money found staff routinely informing over-indebted consumers to write to their current account provider to demand charges are refunded.

The Royal Bank of Scotland (RBS), the parent bank of NatWest which is 70 per cent owned by the taxpayer, is one of six high street banks, along with Nationwide building society, fighting the Office of Fair Trading (OFT) in the Court of Appeal to block an investigation into the fairness of bank charges.

High street banks hit customers with charges of up to £39 for going into the red by just a few pence. The banks make billions of pounds a year from the penalties, which consumer groups argue are disproportionate and can exacerbate debt problems.

The Financial Services Authority has extended a waiver allowing banks to freeze claims for refunds while the court case rumbles on.

An investigation by Times Money into the NatWest/RBS MoneySense campaign, which offers free financial guidance in branch to its own customers and those of other banks, found that advisers encouraged consumers to reclaim bank charges.

Times Money reporters visited four NatWest branches across London posing as customers from other banks looking for financial advice. In three cases, the “impartial” MoneySense advisors recommended reclaiming overdraft charges. In only one branch did the advisor refuse to recommend such an approach.

One adviser, a staff member of NatWest, told an undercover reporter that she had applied for the refunds and had also written letters for her friends and family. She said that template letters could be downloaded from the internet.

Phil Jones, personal finance campaign at Which?, the consumer association, said: “It is hypocritical and bizarre that while RBS is levying these unfair charges on customers its own advisers are encouraging customers of other banks to reclaim them. RBS should throw in the towel on the current court case along with the other high street banks and refund all the customers who have been hit by these unfair charges in the past.”

Last year the banks appealled against a decision in the High Court to allow the OFT to investigate the fairness of charges levied by banks and building societies.

The Court of Appeal has not yet come to a verdict.

A NatWest spokeswoman refuted the allegations but declined to comment further.

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Some customers of the NatWest bank may have a new opportunity to reclaim their bank overdraft charges.

A High Court judge has ruled that the bank's terms and conditions, used from 2001 to July 2003, may have included unfair penalties for going overdrawn.

The ruling by Mr Justice Andrew Smith is one of a several in the long running test case on bank charges.
Most overdraft claims in county courts have been halted since July 2007 while the High Court resolves the issue.

"The court found that a single historic NatWest term prohibited customers from using a card to go overdrawn but this does not mean that that term is a penalty," said a NatWest spokesman.

New cases?

The consumers' organisation Which? said in theory some NatWest customers could now ask their courts to reopen their claims, but warned it would not be plain sailing.

"Firstly, the judge this week only said Natwest's 2001 charges may be penalties, not that they are penalties," said Which? lawyer, Chris Warner.

"This means the customer would need to show that the charges were actually penalties by proving that the charge did not reflect the bank's costs.

"Also, as the issue of charges reflecting the cost to the bank is part of the OFT's ongoing fairness assessment, Natwest may be able to convince the court to stay any cases brought against it until the OFT's investigation is complete," he added.

Marc Gander, of the Consumer Action Group (CAG), said some of his members were now thinking of returning to court, after being charged under the NatWest's 2001 conditions.

"It affects personal and business customers, but only for a limited period of time," he said.

"The bigger question is whether the contracts will be subject to the consumer contract regulations."

The ruling

The banking industry and the Office of Fair Trading (OFT) are waiting for the Appeal Court to hand down its judgement on a bank appeal against an earlier ruling by Mr Justice Smith.

Last year he dealt a blow to the right of banks to levy high overdraft charges when he decided that the 1999 regulations, regarding unfair terms in consumer contracts, gave the OFT the right to scrutinise those charges.

This week's judgement by Mr Justice Smith was one of three residual decisions, made on whether or not charges levied under old or "historic" terms and conditions could also be penalties under common law, and therefore not recoverable.

Last October he cleared most of the old contracts used by seven banks and the Nationwide building society, who are the parties to the test case with the OFT.

However he needed more time to consider some of the terms and conditions used in the past by the Abbey, Lloyds TSB and RBS NatWest.

This week he gave the first two of those banks the rulings they had been seeking; that their former current account conditions did not fall foul of common law.

But he found against the NatWest.

"I still consider the relevant term in the NatWest 2001 conditions to be contractual and to impose a contractual prohibition on the customer," said the judge.

"I therefore remain unpersuaded that the relevant term in the NatWest 2001 conditions is not capable of being penal," he added.

Common law

The significance of the judge's decision is that if a clause in a contract imposes an obligation not to do something - such as not going overdrawn on a current account without permission - then any money charged for breaking that condition must not be more than is actually necessary to compensate the bank.

That is because under common law it is illegal for any penalty charges or fees, imposed by a business, to be excessive.

Campaigners have argued that typically it does not cost a bank more than about £2 to tell someone they have gone overdrawn and to repay their unauthorised borrowing.

In contrast, bank charges have sometimes been more than £30 each time a customer has gone into the red or had a cheque bounced.

"The OFT and RBS group are considering their positions pending finalisation of the order," said an OFT spokeswoman.
This means either side could appeal, which might delay any attempt to start a case in the county courts.

And this week the Financial Services Authority (FSA) gave the banks another six months in which they could park any claims for the return of bank charges.

"The fact that the FSA's waiver, which has just been extended by another six months, is still in place with the exception of financial hardship cases and it could be very difficult for anyone to make a successful claim at this stage," said Chris Warner of Which?

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Thousands of savers who are pursuing their banks over unfair overdraft charges have been told they will have wait at least six months more to learn if they will receive compensation.

The Financial Services Authority (FSA) announced today that it is extending the waiver that allows banks not to pay out on claims.

The waiver was introduced in July 2007 when the Office of Fair Trading (OFT) started a court action to prove that high charges for unauthorised borrowing are unfair. It was due to expire next Monday, but the court case is far from complete and the FSA has said that it will allow banks to put claims on hold for a further six months.

Dan Waters, director of Retail Policy and Conduct Risk at the FSA, said: “Our objectives continue to be certainty over this complex issue, and a fair and consistent resolution of consumer complaints about unauthorised overdraft charges. The FSA has reviewed the prevailing circumstances and has decided to offer firms an extension to the waiver, to run for up to six months.”

While the waiver is in place the Financial Ombudsman Service has agreed not to proceed with complaints. Cases in the county courts have also been put on hold. The FSA can revoke the waiver at any time if the situation changes.

The waiver covers almost all banks - 98 per cent. You can view the banks and building societies that qualify here .

It relates to a legal challenge by the OFT against eight institutions responsible for the majority of the UK’s current accounts, including Barclays, HSBC, Lloyds TSB and the Royal Bank of Scotland.

The OFT is seeking a court ruling that unauthorised overdraft charges are unlawful under consumer regulations introduced in 1999. It estimates that the banks earn £2.6 billion a year from the charges.

In April, the OFT won the first stage after the High Court rejected the banks’ claim that the regulations did not apply. This prompted the banks to ask the Court of Appeal to overturn that decision. The Court of Appeal’s judgment has yet to be handed down.

Martin Lewis, of MoneySavingExpert.com, a financial website, said: "This means people are still sitting on their hands, unable to try to reclaim money which was taken from their accounts without their permission, while the banks continue to make £100s of millions in charges and take bailouts from the government.

"Paying out to consumers now could free up cash for spending to boost the economy, but how long are people expected to wait? A further year? Until it goes all the way to the European Court? With the economic slowdown, the credit crunch, inflation and house prices falling, this hold adds to the woes."

However, some consumer groups have welcomed the extension of the waiver because it means that claims can be made going back for a longer period.

The rules state that you are able to make a claim for charges incurred over the past six years. As long as the waiver is in place, consumers can claim charges dating back to July 2001.

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