News

Banks Win Court Battle On Overdraft Charges
Wed 25th Nov 09 - 11:02

Mark Langford of Sky News Online reports that High street banks have won their appeal at the Supreme Court over unauthorised overdraft charges.

It ruled in favour of the seven major banks and a building society, which had challenged High Court and Court of Appeal decisions that the charges were unfair and should be subject to regulation by the Office of Fair Trading.

The result was awaited by tens of thousands of customers whose refund claims had been frozen while the test case went through the courts.

Handing down the unanimous ruling Lord Phillips, president of the Supreme Court, said: "It may be open to the Office of Fair Trading to assess the charge under other criteria."

The decision was described as "a bitter blow" by Peter Vicary-Smith of consumer magazine Which?, which led a campaign encouraging people to reclaim the charges.

He said: Not only does it give banks licence to charge what they like for unauthorised overdrafts, but it could have ramifications for other areas of personal finance.

"The banks have done everything possible to frustrate the OFT throughout this process.

"The OFT and the Government should now explore other avenues to get a fair deal for consumers."

Customers who go into unauthorised overdraft or breach their agreed limit can be charged as much as £35 or more for a single bounced payment.

Campaigners claim the actual cost to the banks could be as little as £2.50.

If the banks had lost the test case, it could have cost them £2.6bn a year in lost revenue and led to their having to make refunds of up to £1bn.

Before refund claims were frozen, banks had already paid out more than £559 million to customers who complained about "rip-off" overdraft charges.

But many of the high street banks have already changed the structure of the fees they charge people who go into the red, with or without permission.

The test case was brought jointly by the OFT and Abbey, Barclays, Clydesdale, Halifax Bank of Scotland and Lloyds TSB, which are now part of the same group, HSBC, Royal Bank of Scotland Group and Nationwide Building Society.

Mark Briegal, Partner at Ralli commments on the article: "This decision will come as a blow to consumer organisations and those customers who inadvertently go overdrawn.  From a legal viewpoint the customers have entered into contracts with their banks which are clear as to what the charges will be.  The issue is one of fairness.

Even the most diligent and organised of us have forgotten a cheque or miscalculated something and slipped into the red and are then upset at paying a charge for the privilege of being £25 overdrawn for 2 days.  It is of course possible to discuss this with your bank and they will sometimes reverse the charge if you are a good customer and they want to keep your custom.

I have in the past charged my bank when they made a mistake which caused me grief.  If they can charge me £35 for a letter when they feel the need to write to me, I think I should be able to charge them for my letter to them if they make a mistake.  I have done this and on occasions had a credit to my account!  The issue is that I’m not contractually able to do that, but they will occasionally make a goodwill gesture.

The other side of the argument is that if banks had lost this £2.6bn of revenue that would have clawed it back elsewhere.  Charging for cash withdrawals has been suggested and I, as someone who does check my statements and budget carefully (I know - I should get out more, but I am a lawyer!), might have ended up paying for those who do not manage their finances as well.

So what’s the way forward?  Sadly it is boring - check your statements carefully, budget carefully and always let the bank know if you’re going overdrawn before they tell you so you can agree something, hopefully without a charge."