The Independent - Bank charges delay is bad news for all

For many of the hundreds of thousands of bank customers who are seeking a refund of unauthorised borrowing charges, battling the complaints system has been a frustrating experience.

Some banks have been settling all complaints without a fight. Others have only refunded the fees of those customers making the most fuss. In the worst cases, banks have threatened to close the accounts of customers complaining about the charges. And many more cases are held up at the Financial Ombudsman Service, which does not have the resources to cope with such a deluge of disputes.

The Financial Services Authority, Britain's chief City regulator, confirmed this sorry state of affairs yesterday. It warned that the approach to complaints about unauthorised borrowing charges varies widely across the banking industry and that not all current account providers have been handling complaints properly. Some banks, the FSA says, have even misled customers and two are now facing possible disciplinary action.

It's comforting to know that the watchdog has been keeping such a beady eye on an issue that has prompted up to 2 million bank customers to consider seeking a refund of charges paid over the past six years. What a shame, however, that the FSA's warning yesterday came just 18 hours after it announced all banks could suspend the handling of claims for refunds, pending the outcome of a test case launched by the Office of Fair Trading.

Unfortunate timing, to say the least - the FSA now finds itself rebuking leading banks for their behaviour over borrowing charges while simultaneously telling them not to worry about the issue for the time being.

The OFT's announcement on Thursday evening is also an odd one. It's perfectly sensible to ask the courts to decide whether banks have broken the law in charging, for example, a customer £35 for breaching his overdraft limit when most independent analysts believe processing such a breach costs nowhere near that much. But why on earth has the watchdog only just come up with this bright idea?

This is an issue that first came to light more than a year ago, when the OFT ruled that similar charges made by credit card companies were illegal and unfair contract laws. The watchdog subsequently launched a review of unauthorised borrowing fees in the banking industry and several months ago broadened out its investigation into a full-scale study of bank charges.

Consumer groups had hoped for a ruling on the specific issue of unauthorised borrowing fees before Easter. If the OFT had been able to come to a conclusion on its own back then, it would have been doing the banks a favour too. As it was, both complaints and complaints handlers have had to work in the dark, unclear on the exact legal position in these cases.

There can be no certainty about how the OFT's test case will work out. Customers can't assume they'll be entitled to full refunds and the banks must be concerned that the courts will rule against them. Either way, there could be years of appeals, with tortured arguments about the minutiae of different cases.

It would have been so much simpler if the regulator could have come to its own view. The OFT seems to have been put off by anxiety that clamping down on one set of bank charges might lead to higher fees elsewhere - possibly even the end of free banking. That debate, however, misses the point; these particular charges are either illegal or they're not.

The launch of this test case is just the latest way in which the OFT has opted out of making a decision. It will mean further delays - and possibly lengthy ones - in the settling of these cases. And it's bizarre that if the regulator really felt unable to issue its own ruling, it did not pursue this route many months ago.

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