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Bank customers in line for 6bn refund of overdraft charges - Times Online
MILLIONS of bank customers will be in line for payouts totalling up to £6 billion if a Supreme Court judgment on current account charges goes against the banks this week.
The government is putting pressure on the banks to settle quickly, rather than appeal and drag the case through the courts for several years, should they lose the test case on Wednesday.
The court will rule on whether the Office of Fair Trading (OFT) can investigate the legality of unauthorised overdraft charges. These are penalties levied when customers bounce cheques or go into overdraft without authorisation.
The charges can run into hundreds of pounds, with some banks charging £39 for a single breach, even though critics claim the cost to the banks is as little as £4.
The case began in July 2007, when eight banks and building societies — HSBC, Royal Bank of Scotland, Halifax, Lloyds, Abbey, Nationwide, Barclays and Clydesdale — asked the High Court to rule whether the OFT could investigate the fees.
The banks have lost two High Court judgments on the matter and so have taken the case to the Supreme Court, Britain’s highest court, established last month.
Treasury officials told The Sunday Times that the banks would be pushed to negotiate a settlement after the verdict, rather than pursue the matter through the European courts if they lost.
A Treasury source said: “The government will be looking to settle the matter out of court rather than allow the banks to drag the process through the legal system, which could take several years before a satisfactory outcome.”
Treasury officials have had discussions with the banks about a settlement, though payouts may still not occur for several months.
The British Bankers’ Association said it was in discussions with the Financial Services Authority, the City watchdog, on the issue. “We have been discussing the process with the authorities from the beginning, and we will continue to do so,” the association said.
Experts believe a settlement could see the banks forced to set aside £6 billion to repay claims from customers who apply for refunds. The consumer group Which? said the average claim was expected to be about £634. Three in five of the 12m owed refunds have yet to claim.
Banks paid out £1 billion to customers before refunds were halted pending the outcome of the case. Martin Lewis, founder of MoneySavingExpert, the website that brought overdraft charges to public attention, believes the figure could be £10 billion, based on the OFT’s estimate that banks make £2.6 billion a year from unauthorised overdraft charges. Claims can be made going back eight years, but any redress is likely to factor in the cost to banks of processing payments.
“The public has paid banks billions but many [people] are still struggling to get a decent loan,” he said. “Overdraft charge refunds would mean some of this money is given back to the taxpayer.”
The banks may push for legislation to cap future claims in return for a settlement. A spokeswoman for the British Bankers’ Association, said: “We went to court to gain clarity on this matter. The court must conclude and make it quite explicit.”
MILLIONS of bank customers will be in line for payouts totalling up to £6 billion if a Supreme Court judgment on current account charges goes against the banks this week.
The government is putting pressure on the banks to settle quickly, rather than appeal and drag the case through the courts for several years, should they lose the test case on Wednesday.
The court will rule on whether the Office of Fair Trading (OFT) can investigate the legality of unauthorised overdraft charges. These are penalties levied when customers bounce cheques or go into overdraft without authorisation.
The charges can run into hundreds of pounds, with some banks charging £39 for a single breach, even though critics claim the cost to the banks is as little as £4.
The case began in July 2007, when eight banks and building societies — HSBC, Royal Bank of Scotland, Halifax, Lloyds, Abbey, Nationwide, Barclays and Clydesdale — asked the High Court to rule whether the OFT could investigate the fees.
The banks have lost two High Court judgments on the matter and so have taken the case to the Supreme Court, Britain’s highest court, established last month.
Treasury officials told The Sunday Times that the banks would be pushed to negotiate a settlement after the verdict, rather than pursue the matter through the European courts if they lost.
A Treasury source said: “The government will be looking to settle the matter out of court rather than allow the banks to drag the process through the legal system, which could take several years before a satisfactory outcome.”
Treasury officials have had discussions with the banks about a settlement, though payouts may still not occur for several months.
The British Bankers’ Association said it was in discussions with the Financial Services Authority, the City watchdog, on the issue. “We have been discussing the process with the authorities from the beginning, and we will continue to do so,” the association said.
Experts believe a settlement could see the banks forced to set aside £6 billion to repay claims from customers who apply for refunds. The consumer group Which? said the average claim was expected to be about £634. Three in five of the 12m owed refunds have yet to claim.
Banks paid out £1 billion to customers before refunds were halted pending the outcome of the case. Martin Lewis, founder of MoneySavingExpert, the website that brought overdraft charges to public attention, believes the figure could be £10 billion, based on the OFT’s estimate that banks make £2.6 billion a year from unauthorised overdraft charges. Claims can be made going back eight years, but any redress is likely to factor in the cost to banks of processing payments.
“The public has paid banks billions but many [people] are still struggling to get a decent loan,” he said. “Overdraft charge refunds would mean some of this money is given back to the taxpayer.”
The banks may push for legislation to cap future claims in return for a settlement. A spokeswoman for the British Bankers’ Association, said: “We went to court to gain clarity on this matter. The court must conclude and make it quite explicit.”
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