A test case which will determine the legality of bank charges and rule whether or not banks are required to refund customers who have paid charges and reduce the amount the implement for future ones begins this Wednesday, January 16.
It has been almost two years since the Office of Fair Trading found that the charges which customers incur for such things as bouncing cheques, exceeding authorised overdraft limits and having insufficient funds for direct debits, are unfair.
Since then, thousands of unhappy customers have reclaimed as much as £1 billion, but a total of £5 billion stands to be reclaimed if the court rules in favour of the consumer. At the expense of customers which have found that charges which can exceed £35 have been taken from their account for each transaction that fails or takes account holders over the limit, the banks have made an estimated £3.5 billion a year in profit.
The OFT offered to allow the eight big banks and a building society – Abbey, Barclays, Clydesdale, HSBC, HBOS, Lloyds TSB, Royal Bank of Scotland and Nationwide – to acoid going to court by voluntarily reducing their charges to only cover administration costs, but they refused, maintaining that the charges they implement are both fair and lawful.
Sine the court case was announced, there has been a freeze on reclaiming bank charges until the case has been clarified by law, but consumer groups are urging customers to continue to make claims to their banks for a potentially quicker refund if the court rules in favour of the consumer. Until the case is settled and all customers will get their money back if the decision goes their way, only those in genuine financial hardship will be considered by banks for a refund.
Consumers eagerly anticipate a result, but this could potentially not be forthcoming for several months, at which point, if the OFT succeeds, the banks could lodge an appeal which would delay a decision by a further 12 months, according to consumer watchdog Which?
The court will be considering whether the Unfair Terms in Consumer Contracts are applicable to bank charges in order to determine the legality of such fees.
The OFT said of the case that it “will not address whether terms and conditions or specific charges of individual banks are unfair”, but while the case is ongoing it will continue to “analyse information supplied by the banks, and further information on the investigation into unfairness will be published after the judgment has been delivered and OFT has had time to consider any implications.”
Considering the public significance of this case, regardless of who wins this initial stage, it is predicted that the House of Lords will be called upon to ultimately determine who will win in the end.
