Judgement due on bank charges

Overdraft charges

Today will see the Supreme Court handing down a judgement which could lead to billions of pounds being refunded to millions of bank customers in the UK who have gone overdrawn and been charged.

Lord Phillips will reveal the Court's decision on an appeal by seven banks and the Nationwide building society. The decision follows more than two years of test case litigation.

They want to stop the Office of Fair Trading (OFT) using consumer protection rules to investigate the fairness of their charges for unauthorised overdrafts.

So far the banks have lost at both the High Court and Appeal Court stages of the test case.

Both of those courts agreed with the OFT that it has the power, under the Unfair Terms in Consumer Contracts Regulations (UTCCR), to scrutinise the fairness of overdraft fees.

Charges

Bank customers who exceed their overdraft limits without agreement can be charged as much as GBP£35.

The charges include "unpaid item fees" if your bank bounces payments such as direct debits, and "paid referral fees", such as when a bank honours a cheque even though there is not enough money in your account.

The average unpaid fee is GBP£22.50 while the average paid referral fee is GBP£23.25, with customers also facing fees of up to GBP£20 a day for unauthorized borrowing for when customers have stepped considerably beyond their agreed overdraft limit.

Loss

The banks have been battling the proposed ruling as about GBP£2.6 billion of annual income is at stake.

If the court decides the charges are unfair, experts predict banks stand to lose up to GBP£10 billion while customers are likely to see charges imposed on a range of banking services which they have traditionally enjoyed for free, the British newspaper The Telegraph said.

At the House of Lords appeal during the summer, the decision on which is now being handed down, the banks argued that the legislation simply does not give the OFT the powers it thinks it has.

If the OFT wins then it will open the door for it to announce that overdraft charges are indeed unfair, when it reveals the result of its parallel investigation into them soon.

Technically that should then trigger an automatic refund of all banks charges that have been levied since July 2001.

Some campaigners have argued that any refunds should stretch back even further, to the start of 1995, when the UTCCR regulations first entered UK law.

If the banks were to win their appeal, it would mean the efforts of the OFT over the last three years have been completely undermined.

Not only that, but it would be a huge defeat for campaign groups and media organisations which have encouraged people to launch refund claims in the county courts.

The OFT has claimed that even if it loses, it will still try to use other powers, perhaps by instigating a full competition commission enquiry, to attack overdraft fees, the BBC states.

Conclusion

Whichever side loses, technically could try to take the issue to the European Court of Justice. Although such a route of appeal is not automatic.

Banks may be forced to reduce their charges, leaving customers who have already paid to try to reclaim the money.

Experts warned it would leave banks seeking to recoup their losses in other ways.

Andrew Hagger, of personal finance website Moneynet, said to The Telegraph, "Whether it's fair or not, we may have to come to terms with having to pay for our banking, but if we do there will be increased expectations on levels of service and quality of products - neither of which I doubt will be forthcoming".

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