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Unauthorised overdraft charges : FSA Money made clear – News
Unauthorised overdraft charges
Test Case
21 January 2009
In the High Court today, the judge gave his decision on whether certain historic terms and conditions (see below) are capable of being penalties at common law. This follows a hearing held on
9 December 2008 to consider further submissions from Abbey, Lloyds TSB and the Royal Bank of Scotland Group (RBSG).
What did the judgment cover?
Today’s judgment covered whether the following historic terms and conditions are capable of being penalties at common law:
What did the judgment say?
The judge found that the terms are generally not capable of being penalties at common law. However there is one exception to this – one of RBSG's NatWest 2001 terms has been found to be capable of being a penalty.
Background to the test case
In July 2007, the Office of Fair Trading (OFT), seven UK banks (Abbey, Barclays, Clydesdale, HBOS, HSBC, Lloyds TSB and RBSG) and the Nationwide Building Society began a test case about unauthorised overdraft charges for personal customer accounts.
We are not party to the test case, but we have an interest in it, and give support where needed.
What is the case about?
The test case process is in two stages:
What has happened so far?
The court has so far made the following decisions in stage one of the test case.
The High Court decided that the current terms and conditions:
See April 2008 (PDF) for the full judgment.
The banks appealed the High Court’s decision that current terms and conditions can be assessed for fairness. The appeal was heard by the Court of Appeal from 28 October to 5 November. We are now waiting for the Court of Appeal’s judgment to be handed down.
The High Court decided that the historic terms and conditions:
See October 2008 (PDF) for the full judgment.
The banks have appealed the High Court’s decision that historic terms and conditions can be assessed for fairness. The appeal has been put on hold until the judgment on the appeal of the current terms is handed down.
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Complaints and FSA’s waiver
What is the waiver?
We granted firms a waiver so that they do not have to deal with complaints about unauthorised overdraft charges in the time specified under FSA rules. In effect banks and building societies can put customer complaints on this issue 'on hold' until the test case process is resolved.
The waiver applies only to complaints about unauthorised overdraft charges. Firms must continue to deal with complaints about other financial matters, such as insurance, mortgages or other complaints regarding their current accounts, in the usual way.
Why did we grant the waiver?
Until July 2007, some customers were being refunded unauthorised overdraft charges when complaining whilst others were not. We didn't believe this inconsistent approach was in the interests of all consumers. So on 27 July 2007, we granted a number of banks and building societies a 'waiver' to support the test case process.
How long will the waiver last?
The first waiver expired on 26 July 2008. We decided to grant a second waiver and this expires on 26 January 2009. This has been extended by a further waiver for up to six months (until 26 July 2009). We will continue to assess whether the waiver remains appropriate. Back to top ^
What does this mean for you?
If you've already made a complaint or are thinking of making a complaint about unauthorised overdraft charges here are some general questions and answers to help you – for information about your individual circumstances speak to your bank or building society.
Back to top ^
More information
Current press releases
Previous press releases
Find out more about:
Unauthorised overdraft charges
Test Case
21 January 2009
In the High Court today, the judge gave his decision on whether certain historic terms and conditions (see below) are capable of being penalties at common law. This follows a hearing held on
9 December 2008 to consider further submissions from Abbey, Lloyds TSB and the Royal Bank of Scotland Group (RBSG).
What did the judgment cover?
Today’s judgment covered whether the following historic terms and conditions are capable of being penalties at common law:
- Abbey's May 2005 conditions relating to its Instant Plus account;
- Lloyds TSB's terms; and
- RBSG's terms.
What did the judgment say?
The judge found that the terms are generally not capable of being penalties at common law. However there is one exception to this – one of RBSG's NatWest 2001 terms has been found to be capable of being a penalty.
Background to the test case
In July 2007, the Office of Fair Trading (OFT), seven UK banks (Abbey, Barclays, Clydesdale, HBOS, HSBC, Lloyds TSB and RBSG) and the Nationwide Building Society began a test case about unauthorised overdraft charges for personal customer accounts.
We are not party to the test case, but we have an interest in it, and give support where needed.
What is the case about?
The test case process is in two stages:
- Stage one is known as the 'preliminary issues process'. This looks at whether the banks’ terms and conditions
- are subject to the Unfair Terms in Consumer Contract Regulations 1999 (the Regulations); and
- are capable of being 'penalties' at common law. - Stage two will deal with whether the terms are actually unfair and are actually penalties at common law.
What has happened so far?
The court has so far made the following decisions in stage one of the test case.
The High Court decided that the current terms and conditions:
- could be assessed for fairness under the Regulations;
- were not capable of being penalties at common law; and
- were in, or largely in, plain intelligible language.
See April 2008 (PDF) for the full judgment.
The banks appealed the High Court’s decision that current terms and conditions can be assessed for fairness. The appeal was heard by the Court of Appeal from 28 October to 5 November. We are now waiting for the Court of Appeal’s judgment to be handed down.
The High Court decided that the historic terms and conditions:
- could be assessed for fairness under the Regulations;
- were generally not capable of being penalties at common law. However, there is one exception to this – one of RBSG's NatWest 2001 terms has been found to be capable of being a penalty.
See October 2008 (PDF) for the full judgment.
The banks have appealed the High Court’s decision that historic terms and conditions can be assessed for fairness. The appeal has been put on hold until the judgment on the appeal of the current terms is handed down.
Back to top ^
Complaints and FSA’s waiver
What is the waiver?
We granted firms a waiver so that they do not have to deal with complaints about unauthorised overdraft charges in the time specified under FSA rules. In effect banks and building societies can put customer complaints on this issue 'on hold' until the test case process is resolved.
The waiver applies only to complaints about unauthorised overdraft charges. Firms must continue to deal with complaints about other financial matters, such as insurance, mortgages or other complaints regarding their current accounts, in the usual way.
Why did we grant the waiver?
Until July 2007, some customers were being refunded unauthorised overdraft charges when complaining whilst others were not. We didn't believe this inconsistent approach was in the interests of all consumers. So on 27 July 2007, we granted a number of banks and building societies a 'waiver' to support the test case process.
How long will the waiver last?
The first waiver expired on 26 July 2008. We decided to grant a second waiver and this expires on 26 January 2009. This has been extended by a further waiver for up to six months (until 26 July 2009). We will continue to assess whether the waiver remains appropriate. Back to top ^
What does this mean for you?
If you've already made a complaint or are thinking of making a complaint about unauthorised overdraft charges here are some general questions and answers to help you – for information about your individual circumstances speak to your bank or building society.
- What this will mean for you, if you
- have an outstanding complaint with your bank or building society
Your complaint will remain with the bank or building society but will not be dealt with until the test case process is resolved, apart from financial difficulty cases (see below). - have a case on hold at the county court
The judge has indicated that in his view these cases should continue to be put on hold for the time being. - received a final response from the bank or building society which did not include an offer
If you are not happy with the firm's response, you can still take your complaint to the Financial Ombudsman Service. However, the Ombudsman is unlikely to progress complaints about unauthorised overdraft charges – other than in financial difficulty cases (see below) – until the test case process is resolved. - have already had a settlement and want it reviewed
A full and final settlement is just that – it is final. In some exceptional circumstances a complaint can be reviewed (for example, if there is evidence of coercion or bullying). However, you can still complain about any new charges incurred since that settlement. - are in difficult financial circumstances – 'financial difficulty cases'
If you have a case of genuine financial difficulty, your bank or building society must still deal with your complaint. This may involve – or not – the repayment of charges. See the Banking Code for how they can help. If you're not happy with the firm's response to your complaint, you can take it to the Ombudsman, who will consider whether your complaint can be dealt with before the test case process is resolved. - wish to complain from today
You can complain now or you can wait until the test case process has been resolved. Your complaint will be recorded and stored. Your bank or building society will still have to acknowledge your complaint promptly and keep you updated on developments in the test case process. - are worried about your complaint being time-barred
We have protected your rights by making it a condition of the waiver that complaints will not be time-barred. In effect, the clock stopped on 27 July 2007. For example, if you are applying to reclaim charges for the last six years and the waiver was in place for two years, those two years would not count. (Please see below about making a complaint in Scotland.) - want to complain to the bank about other issues
You can still use the existing complaints process for other financial complaints – see Making a complaint. But, if your complaint relates to the fairness of unauthorised bank charges, that part of your complaint won't be dealt with until the test case is resolved. - want to make a complaint in Scotland
You can take your complaint to the Ombudsman or the courts. If you want to take your complaint to court in Scotland, then timing is important. You may want to get independent advice and file a claim now to protect your rights (although you will have to pay a court fee).
- have an outstanding complaint with your bank or building society
- Will banks and building societies still charge customers for unauthorised overdraft charges during this time?
Yes, it is likely that they will do so. - Which banks and building societies have been granted the waiver?
Here is the list of firms granted the waiver:
List of banks and building societies who have signed up (PDF) - What if I am a Barclays customer?
Barclays introduced replacement terms and conditions on 18 August 2008. Our waiver does not cover complaints and charges set by these terms.
What does this mean for Barclays' customers:- if you want to complain about charges incurred on your personal account on or after 18 August 2008?
If you make a complaint about the new personal current account charges – i.e. those that are incurred on or after 18 August 2008 – Barclays will deal with your complaint in line with our complaint handling rules.
Barclays does not think that its new charges are unauthorised overdraft charges. As such, it does not think the outcome of the test case process will be relevant to the new charges. This is the reason why Barclays has not sought a waiver to cover the new charges. For information about the test case process see Background to the test case. - if you want to complain about unauthorised overdraft charges incurred before 18 August 2008 which are covered by the waiver
Your complaints will be dealt with in the way described above in question 1. - if you do not accept a decision taken by Barclays about a complaint
You can take your complaint to the Financial Ombudsman Service. However, if the complaint relates to a charge incurred before 18 August 2008 the Ombudsman is unlikely to progress the complaint until the test case process is resolved (apart from financial difficulty cases). If your complaint relates to personal current account charges incurred on or after 18 August 2008, the Ombudsman will consider the complaint.
Barclays must let customers know what it is doing about a complaint. This is a requirement under the terms of the waiver and our complaint handling rules.
- if you want to complain about charges incurred on your personal account on or after 18 August 2008?
- Will the current market affect the status of my complaint?
Your complaint will remain on hold while the test case continues and as long as we keep the waiver in place.
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More information
- April 2008 judgment (PDF).
- October 2008 judgment (PDF).
Current press releases
Previous press releases
- British Bankers' Association (BBA) – 26 July 2007
- FSA – 27 July 2007
- FSA – 21 July 2008
- FSA waiver review – 21 November 2007
- OFT – 24 April 2008
- British Bankers' Association (BBA) – 24 April 2008
Find out more about:
- Bank accounts
- Personal current accounts in the UK – (on the OFT website)
- The Banking Code
