The banks argued that current account charges are ‘fair and clear” and cover a service provided by the banks to the customer when they go overdrawn.

The OFT rejected this. It said that a current account represents a loan from the customer to the bank. In so far as the account is in credit, the customer has the right to withdraw money and thereby reduce the loan.

It added that overdraft facilities are optional extras – usually only provided at the customer’s express request - that are not offered as part of all current accounts and that are not essential for the operation of a current account. The banks can – and do – refuse requests for an overdraft facility.

Not essential

The OFT argued that the consumer regulations do not apply to the bank charges as the overdraft facility and other additional services are not essential to the current account. It also said that the bank’s terms are not in plain English and therefore too difficult to understand for customers.

All instructions, whether or not they are covered by sufficient funds in the customer’s account, are processed by the banks’ payment systems and processes. Whatever the bank needs to do before deciding to honour or refuse to carry out a payment instruction or withdrawal is not in itself a service to the customer, in the OFT’s view.

It added that the bank’s decision to honour or refuse a payment instruction or withdrawal is not a benefit that the customer receives or enjoys and have no appreciable value to the customer. The decision and the bank’s tasks in preparing for a decision – whether automated or manual – are performed for the benefit of the bank, not the customer.

Paid item charges

Paid item charges arise where the customer writes a cheque for which he or she has insufficient funds in their current account but which the bank decides to honour. The OFT argued that this would only occur if the customer makes a mistake in using a debit card or standing order without ensuring that sufficient funds are in available in the current account to cover payments.

The banks could simply refuse to honour such payments, rather than to carry it out and charge a fee for doing so. If it does decide to honour them, the customer is charged a disproportionate amount in interest and charges for the amount and period involved.

The case is expected to be heard between 14 January and 28 February 2008.

Related articles

• Banking clients wants better integration
• Banks could face exodus over charges
• UK financial services hit record high
• Credit card companies lose refund case
• Bank charges test case 'misleads the public'
• Abandon plans to lift banking price controls says small business
• SME fury after banks are 'let off'
• Competition Commission lifts price controls on SME banks
• SMEs told to shop around for banks

Related links

• Office of Fair Trading
• British Bankers’ Association