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UPDATED:  OFT wins right to challenge bank charges

For years, banks have been hitting their customers with fees of up to £38 every time they slip into an unauthorised overdraft – a practice that generates up to £3.5 billion a year, according to OFT estimates.

In January 2008, the OFT took 8 of the country’s leading high street banks to court over the issue and a judgment is expected at some point this summer.

Terms and conditions assessed for fairness 

It is not simply a matter of the judge ruling on whether unauthorised overdraft charges are fair or not, however, as the possible outcomes of the case are much more complex.

Firstly, it is important to note that the test case will not decide whether overdraft charges are fair or not. The case is to establish whether the banks’ various terms and conditions (T&Cs) can be assessed for fairness by the OFT.

The test case should decide whether such an assessment can take place for T&Cs currently used by the banks, as well as those T&Cs used over the last six years.

Should the judge decide that the banks’ current T&Cs can be assessed for fairness, the OFT will then be able to make this assessment. We understand the OFT has already started this process so that the issue can be resolved swiftly should they win the test case.

The issue of historic T&C’s is more complex, and really only arises because of the thousands of bank charges cases that have been launched in the county courts or the

Unauthorised overdraft charges 

As a result of the FSA waiver introduced last July, these cases are currently stayed pending the outcome of the test case. Should the Judge decide the historic T&Cs can be assessed for fairness, then the county court judges dealing with the pending cases and FOS will need to decide whether or not the T&Cs relevant to their case are, in fact, fair.

It is expected the county courts, FOS and the OFT will liaise closely on this matter to ensure consistency. A similar situation will arise where new cases are brought in the county courts to reclaim unauthorised overdraft charges.

There are a number of possible outcomes for the test case:

• An outright win for the OFT - The court could rule that all T&Cs for all the test case banks over the last 6 years can be assessed for fairness.
• An outright win for the banks - The court could rule that none of the T&Cs used by any of the test case banks over the last 6 years can be assessed for fairness.
• Something in between - The court might decide that some T&Cs are subject to fairness assessment, while others are not.

Distinctions could be drawn on the basis of the type of charge, the bank in question and the version of T&Cs.

In each of the above scenarios, it will be necessary to assess whether the court’s ruling would apply to the T&Cs of the banks not involved in the case.

This will be more straightforward if either the banks or OFT win outright than if only some sets of T&C’s are deemed subject to an assessment of fairness.

Historic T&Cs

In his judgement, the judge will focus initially on whether the current T&Cs for each bank can be assessed for fairness, according to Adam Williams of consumer organisation Which?

The judge is also expected to rule on certain historic T&Cs, which the test case banks say are representative of all of their historic T&Cs.

"Therefore, all being well, a detailed analysis of the judgement should enable us to identify whether each charge, levied by each test case bank, under each set of T&Cs issued over the last 6 years can be assessed for fairness by the OFT," Williams says.

This will be possible as a result of:

• Explicit statements by the Judge regarding particular current T&C
• Explicit statements by the Judge regarding particular historic T&C
• Read across from findings on current T&Cs
• Read across from findings on historic T&Cs

As the dust settles, however, there may well be some gaps which, to date, have not been identified. For example, it could be discovered that the test case did not cover historic T&Cs that were representative of a particular issue.

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