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Economy

Banks set to appeal in charges test case

Thursday, 22 May 2008

Leading banks are expected to appeal against a High Court decision on overdraft charges.

Peter Vicary-Smith, chief executive of consumer organisation Which?, called the anticipated outcome of a court meeting in London today “a real kick in the teeth” for consumers as it will drag out the whole process.

He warned that it would be at least another year before people start to get their money back, during which time the banks will collect up to £3.5 billion in overdraft charges.

The Office of Fair Trading (OFT), seven banks and a building society brought the test case to establish whether the OFT could challenge the charges under the Consumer Act.

Charges not necessarily unfair

The High Court decided on 24 April that the OFT can apply consumer contract regulations to decide if bank charges are unfair. Justice Andrew Smith said that the ruling did not mean that overdraft charges were necessarily unfair.

The meeting on Thursday aims to smooth out details of the verdict and to hear whether the parties will seek permission to appeal.

In April 2007 the OFT announced its investigation into the fairness of unarranged overdraft and returned item fees, referred to as 'unarranged overdraft charges'.

This followed on from the OFT's initial review of such charges, where the OFT concluded that it shared the public concern about the level and incidence of bank current account charges.

By then, thousands of current account holders had started to swamp the banks with requests for a refund of the charges.

Test case

In July 2007 the OFT agreed with the largest current account providers to bring a test case in order to ensure an orderly and timely resolution of the legal issues associated with its investigation.

This stage of the case was heard between 17 January and 8 February 2008, and dealt with certain preliminary issues of legal principle relating to whether the Unfair Terms in Consumer Contracts Regulations 1999 apply to the banks' various current terms and conditions and whether the charges are capable of amounting to penalties at common law.

The other parties to the test case are Abbey National plc, Barclays Bank plc, Clydesdale Bank plc, HBOS plc, HSBC Bank plc, Lloyds TSB Bank plc, Royal Bank of Scotland Group plc, and Nationwide Building Society.

Together these current account providers account for about 90 per cent of personal current accounts in the UK.

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