Banks have refunded £550 million in chargesRefunds are for unauthorised overdraft fees

05 March 2008

Money

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The major high street banks have so far paid out more than £550 million in refunds to customers who complained about unauthorised overdraft charges.

The payouts, which total £559 million, were revealed in the annual results of the majority of the banks that are involved in the High Court test case over the issue of whether the charges are fair.

But the actual total will be higher as both Abbey and Nationwide Building Society declined to disclose how much they had refunded.

HBOS and Halifax

The HBOS group, which includes Halifax, has faced the biggest payout to customers who complained the charges were unfair, refunding a total of £122 million.

Royal Bank of Scotland Group, which includes high street bank NatWest, has paid out £119 million to date, while Barclays has paid out £116 million and HSBC has refunded £115 million.

£122 million

Amount refunded by HBOS

Lloyds TSB refunded £76 million to customers before the test case began and Clydesdale and Yorkshire Bank said claims and costs, as well as provisions for future administrative costs relating to the issue, totalled £11 million.

Test case

The banks are currently awaiting the judgment from the test case which could pave the way for a ruling on how much they can charge people who go into unauthorised overdraft or breach their agreed limit.

The case was bought jointly by the seven banks and Nationwide and the Office of Fair Trading to settle the issue after consumer began to reclaim millions of pounds through the courts.

The recent case concerns whether unauthorised overdraft charges come under the scope of the 1999 Unfair Terms in Consumer Contracts Regulations.

Fair

If the judge rules that this is the case, 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, who argued that consumer contract rules do not apply to the charges and that, even if they do, the fees are not unfair, have been given permission to put any new or ongoing refund claims on hold until the outcome of the test case is known.

HSBC said yesterday that in the worst case scenario total refunds could reach £303 million if it loses the court case.

Bill of £1.1 billion

The other banks involved declined to predict the total liability they would face if they lost the case, but if, like HSBC, total payouts would be more than double what they have refunded so far, banks could collectively face a bill of more than £1.1 billion from the issue.

Banks are thought to make between £2 billion and £3.5 billion a year in fees charged when customers go into unauthorised overdraft.

These fees 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 current account fee.

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