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Claims put pressure on court system
By Michael Peel and Jane Croft
Published: July 9 2007 22:58 | Last updated: July 9 2007 22:58
Banks and the competition watchdog are urgently trying to stem a rise in legal claims against overdraft charges, which are placing a growing strain on the court system.
The number of small consumer claims that allege unfairly high overdraft levels has risen sharply since last year, say banks, competition lawyers and government officials.
Official statistics on court activity do not state what each case is about, but many informed observers say the rises in money claim actions in the past 18 months reflect a rising tide of overdraft-related court cases.
A principal reason the overdraft fee dispute remains unresolved is that the banks tend to settle claims out of court or do not defend themselves in cases that do reach court. The merits of the claims have therefore never been contested all the way through county and higher courts.
Critics say the banks are afraid of losing a precedent-setting case.
Eric Leenders, director of the British Bankers’ Association, said banks were eager to resolve questions hanging over the running of current accounts, which were “at the core of the relationship between the bank and its customers”.
He said: “No bank wants to see their customer in court. That’s why banks take this so seriously and want to resolve the issue before it gets to court.”
The total number of money claims in county courts – where bank overdraft claims are typically heard – peaked at almost 47,000 in March, about 20 per cent up on January, before falling slightly in April and May. Cases filed through an internet claims service set up partly to relieve strain on the court system topped 20,000 in May, almost three times as high as during the same period last year.
Claims are having a noticeable financial impact on the banks. HBOS and other institutions plan to devote a separate line in financial results to customer claims over fees.
A deluge of cases has caused widespread anxiety, including among the district judges who are saddled with hearing the cases.
The explosion in overdraft-related claims has its roots in a campaign launched in March last year by the Which? consumer body.
It and other groups claim that overdraft charges are penalties rather than discretionary service fees, and so should reflect only the modest cost incurred by a bank.
Competition lawyers say such a shift could lead banks to stop offering free banking to customers who are in credit. Instead, banks could operate a more Continental-style system and charge for each transaction.
Banks privately say that they are keen to resolve both the logistical problems caused by the volume of litigation and the legal uncertainty over the status of overdraft charges.
One possibility under discussion is the launch of a test case against a consumer organisation, to win a ruling that would provide a precedent for other cases. (Interesting paragraph.. MAD)
The dispute has pulled in the Office of Fair Trading, which is investigating the fairness of a wide range of bank charges. People familiar with the organisation’s thinking say it is considering measures to help curb the number of cases that come to court.
The OFT declined to comment.
For now the court service is bearing the brunt of small claim disputes, with which, it says, it is dealing “effectively” by investing extra resources.
That may be true, but many observers say the courts are having to bear the extra workload without any solution to the broader problem in sight.
Copyright The Financial Times Limited 2007
By Michael Peel and Jane Croft
Published: July 9 2007 22:58 | Last updated: July 9 2007 22:58
Banks and the competition watchdog are urgently trying to stem a rise in legal claims against overdraft charges, which are placing a growing strain on the court system.
The number of small consumer claims that allege unfairly high overdraft levels has risen sharply since last year, say banks, competition lawyers and government officials.
Official statistics on court activity do not state what each case is about, but many informed observers say the rises in money claim actions in the past 18 months reflect a rising tide of overdraft-related court cases.
A principal reason the overdraft fee dispute remains unresolved is that the banks tend to settle claims out of court or do not defend themselves in cases that do reach court. The merits of the claims have therefore never been contested all the way through county and higher courts.
Critics say the banks are afraid of losing a precedent-setting case.
Eric Leenders, director of the British Bankers’ Association, said banks were eager to resolve questions hanging over the running of current accounts, which were “at the core of the relationship between the bank and its customers”.
He said: “No bank wants to see their customer in court. That’s why banks take this so seriously and want to resolve the issue before it gets to court.”
The total number of money claims in county courts – where bank overdraft claims are typically heard – peaked at almost 47,000 in March, about 20 per cent up on January, before falling slightly in April and May. Cases filed through an internet claims service set up partly to relieve strain on the court system topped 20,000 in May, almost three times as high as during the same period last year.
Claims are having a noticeable financial impact on the banks. HBOS and other institutions plan to devote a separate line in financial results to customer claims over fees.
A deluge of cases has caused widespread anxiety, including among the district judges who are saddled with hearing the cases.
The explosion in overdraft-related claims has its roots in a campaign launched in March last year by the Which? consumer body.
It and other groups claim that overdraft charges are penalties rather than discretionary service fees, and so should reflect only the modest cost incurred by a bank.
Competition lawyers say such a shift could lead banks to stop offering free banking to customers who are in credit. Instead, banks could operate a more Continental-style system and charge for each transaction.
Banks privately say that they are keen to resolve both the logistical problems caused by the volume of litigation and the legal uncertainty over the status of overdraft charges.
One possibility under discussion is the launch of a test case against a consumer organisation, to win a ruling that would provide a precedent for other cases. (Interesting paragraph.. MAD)
The dispute has pulled in the Office of Fair Trading, which is investigating the fairness of a wide range of bank charges. People familiar with the organisation’s thinking say it is considering measures to help curb the number of cases that come to court.
The OFT declined to comment.
For now the court service is bearing the brunt of small claim disputes, with which, it says, it is dealing “effectively” by investing extra resources.
That may be true, but many observers say the courts are having to bear the extra workload without any solution to the broader problem in sight.
Copyright The Financial Times Limited 2007
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