Banks launch overdraft appeal

[Legal Beagles]

The UK's banks appeal in the High Court to prevent the OFT deciding current overdraft charges are unfair.

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[Amethyst]

Re: Banks launch overdraft appeal

Banks launch overdraft appeal


Mr Justice Andrew Smith made the original ruling in April

UK banks will appear in the High Court later to challenge a ruling that the Office of Fair Trading (OFT) can decide whether overdraft charges are unfair.
Seven banks and the Nationwide building society will argue that the consumer contract regulations do not give the OFT the necessary powers.
If the appeal fails, it could pave the way for hundreds of thousands of customers to reclaim their charges.
The banks have argued consistently that their charges are fair and reasonable.
The hearing will be the latest in a series of cases to establish how much the banks can charge people when they go overdrawn without permission - something that generates them more than £2bn of income each year.
Unfair?
In April the OFT won the first round in the litigation when Mr Justice Andrew Smith decided the regulator did have have the power to rule whether the charges were fair, under the 1999 Unfair Terms in Consumer Contracts regulations.

It's extremely disappointing that instead of looking for ways to make their customers' lives easier during these difficult times, the banks are piling on the misery by continuing to hit them with unfairly high unauthorised overdraft fees


Peter Vicary-Smith
Chief executive
Which?

But in early October, he ruled that overdraft charges both current and historic, were generally not unfair penalties under common law - defeating one line of argument that had been pursued by the OFT.
The British Bankers Association (BBA) insists that overdraft charges are fair because " customers are fully aware of what they will need to pay for the services they receive".
But it added that the latest case was not about fairness, but whether the terms and conditions which banks set out for customers were "subject to the test of fairness in the regulations at all".
The OFT believes that bank overdraft charges are indeed unfair, but that specific issue will be argued in a separate court hearing in the next few months.
Peter Vicary-Smith, chief executive of the consumer association Which?, criticised the bank's determination to appeal against the first High Court ruling in April.
"It's extremely disappointing that instead of looking for ways to make their customers' lives easier during these difficult times, the banks are piling on the misery by continuing to hit them with unfairly high unauthorised overdraft fees," he said.

This is an important legal issue on which there is very little guidance


BBA

"They should be working with the OFT to establish what constitutes a fair unauthorised overdraft charge and starting the process of refunding the customers they have been overcharging for years," he added.
But the BBA said it was talking with the regulator over whether fees were fair - adding this may be the subject of future hearings before the court
"This is an important legal issue on which there is very little guidance," the BBA added.
Still in limbo
Over the past three years, hundreds of thousands of bank customers have contacted their bank to ask for charges to be refunded.
Many of those who were unsuccessful took their cases to county courts - where the banks usually caved in before a decision was reached.
In July 2007, the Financial Services Authority (FSA) and the courts agreed to a general stay on any new cases being heard by county courts or the Financial Ombudsman Service (FOS), until the legal issues were clarified.
This means that tens of thousands of claims are still in limbo and may remain so until next year or beyond, especially if either side appeals subsequently to the House or Lords.