The Times - Bank charges appeal is thrown out

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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