Banks lose unfair overdraft charges case
The UK's biggest banks could now have to pay back billions of pounds in
overdraft fees to consumers after losing a test case about overdraft charges where a judge ruled these fees could be challenged by the Office of Fair Trading (OFT).
Mr Justice Andrew Smith agreed with the OFT that the charges were covered under the Unfair Terms in Consumer Contracts Regulations 1999; but did state that this did not necessarily mean they were unfair. This paves the way for another hearing whereby if the court decided the charges are unfair, they will decide what a fair charge should be.
The OFT said the ruling was an "important early milestone" and they are "now analysing the implications of the judgment for our overall investigation into the fairness of the terms".
According to the OFT, banks receive almost £10m per day in unauthorised overdraft fees. Banks charge up to £39 for a bounced cheque, standing order or direct debit, when the true cost is as little as £2.
Consumer rebellion began last year after the OFT ruled that similar charges were unlawful and consumer groups began advising consumers that they could claim refunds. The result was more than 1m refund letters were downloaded from websites and some consumers won thousands of pounds when banks refused to contest the claims in court. The BBC estimated that banks refunded £784m to nearly 378,000 customers.
Martin Lewis, founder of Moneysavingexpert.com told Sky News that this was "a massive vindication for bank charges campaigners". He believes that up to £9bn could be reclaimed from banks.
If later hearings find the charges to be unfair, banks could be forced to reduce fees and repay those charged over the last six years. As a result, banks have warned that if they lose this revenue stream, they could introduce a monthly fee for all current account holders.
However, it could be some time before consumers are able to reclaim their money, as it will be a month before the timescales for future hearings will be set, as the banks have until 22 May to decide whether to appeal against the ruling. Banks are able to continue to put reclaim letters on hold under a waiver granted last summer by the Financial Services Authority (FSA).
Consumer group Which? said the banks should not appeal the ruling and the waiver should be dropped, as every second is costing bank customers £111, which is £1bn in bank charges since the start of the test case.
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banks, overdrafts, charges