Banks win overdraft charges case

Millions of consumers hoping to claim back ‘unfair’ bank charges have been dealt a major blow by a Supreme Court ruling.

After more than two years of test case litigation, the rulings that allowed the Office of Fair Trading to investigate the fairness of bank charges in regards to unauthorised overdrafts has been overturned.

A total of seven banks and one building society appealed for two previous rulings to be overturned in order to stop the OFT investigating their overdraft fees applied to UK bank accounts.

The banks had argued they would receive a “deluge of litigation” if the decision was made against them during a 3 day appeal in the House of Lords in June.

As a result of the case, new claims made against banks were frozen in July 2007 following an agreement between the OFT and the banks to stage the test case and determine whether the overdraft charges were legal.

The Supreme Court’s president Lord Phillips found that bank customers make an agreement to pay charges for breaching overdraft terms upon opening a current account, which put them outside the scope of the appropriate regulations.

But he added that this was not a closed case as the OFT could make further attempts to scrutinise bank charges under other sections of the regulations.

“This will not close the door on the OFT’s investigations and may well not resolve the myriad cases that are currently stayed [put on hold] in which customers have challenged the relevant charges,” he said.

Martin Lewis, owner of the Moneysavingexpert website, said: “To lose this at this stage on a legal technicality is absolutely devastating. It should never have got here. The Court of Appeal said the banks should not be allowed to go to the Supreme Court.
“I think there are millions of disappointed people out there.”

Overdraft charges currently generate around £2.6bn of annual income for the banks, so if the outcome had sided the OFT, banks would have needed to explore new avenues inn order to draw back these lost earnings. This is likely to have led to the end of free banking, with monthly charges applied to current accounts

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