Bank charges ruling paves way for refunds

Court throws out appeal in bank charges case

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, 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 5.6m 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.


Hilary Osborne

The GuardianTramp

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