High street banks argued in court yesterday that consumer contract rules on fairness don’t apply to their charges for unauthorised overdrafts.
The banks also contend that, even if the rules are applicable, the fees are not unfair.
In a test case which could pave the way for a ruling on how much banks can charge customers for unauthorised overdrafts, lawyers for one of the banks said the Office of Fair Trading (OFT) itself must bear part of the blame for the ‘torrent’ of court claims launched by dissatisfied customers.
This referred to a comment made by the OFT after a report on credit card charges. It said the same principles applied to current accounts, but this was before the watchdog had begun its investigation, said the lawyer.
The case, in the High Court’s commercial division, was due to start on Wednesday but was delayed. It has been jointly brought by the OFT and seven leading retail banks and Nationwide building society.
The regulator contends that the overdraft charges come under the scope of the 1999 Unfair Terms in Consumer Contracts Regulations.
If the judge rules in the OFT’s favour on this point, the court will decide at a separate hearing later this year whether the charges are unfair and give guidance on what a fair fee should be.
The banks argue that customers, when they open an account, agree to overdraft conditions including charges levied as part of the price for an integrated package of services.
They deny accusations that the conditions are not stated in ‘plain, intelligible’ language.
Total banks make
The charges are incurred when bank customers take out an unauthorised overdraft or breach their authorised limit.
Charges can also be levied if customers make a payment but have insufficient funds in their account to cover it or if banks stop a payment because the account holder does not have enough money.
Banks are thought to make between £2 billion and £3.5 billion a year in fees charged when customers go into unauthorised overdraft.
Cost to banks
The fees charged to customers can be as high as £38, but campaigners claim that the actual cost to banks is far less.
Commercial lawyers have warned that, if the charges are scrapped or drastically reduced, it will mean an end to free banking and all customers will have to pay a monthly fee.
The OFT’s argument is contested by Abbey, Barclays, Clydesdale, HBOS, HSBC, Lloyds TSB, Royal Bank of Scotland and the Nationwide.
Which? has long been campaigning against high overdraft charges, and many thousands of consumers have downloaded our template letters and factsheets on reclaiming.
Top banks have reported paying out about £400 million; estimates of total payouts are as high as £1 billion.
Which? finance campaigner Doug Taylor said: ‘This is a very important case with our research suggesting 40% of consumers will have been hit with a charge in the last six years. We urge all consumers to lodge their complaints with their banks now, even though they will not be progressed immediately, so that if the OFT wins the case their claims will be then handled quickly.’
If you want to complain to your bank, follow our step-by-step guide.