Bank charges court case to begin
The fees charged by banks for unauthorised overdrafts and bounced cheques are to be examined in a test case brought by the Office of Fair Trading (OFT) this week.
The case, which begins on Wednesday and is expected to last from 8 to ten days, will help to clarify some of the uncertainties surrounding bank charges.
The OFT wishes to establish whether the charges, some of which are as high as £30, are a fair reflection of the costs of dealing with unauthorised overdrafts and bounced cheques.
To begin with, the OFT will not request that the court rules on the unfairness of the charges but whether the fees sit within the jurisdiction of the 1999 Unfair Terms in Consumer Contracts Regulations.
Should the court rule in favour of the OFT, then the watchdog will have the authority to decide if the fees are fair or not, and to take appropriate action.
The OFT said: “The banks do not accept that the legal test of unfairness set out in unfair- contract-terms legislation applies to the charges. The OFT believes that it does and is seeking to establish this legal principle clearly in the high court.”
The OFT will also be arguing that the terms and conditions set out by the Banks are not sufficiently clear, so giving the regulator another right to rule on the charges.
The Banks, on the other hand, have argued that the charges are for a service and are not penalties, and so are not affected by consumer legislation.
Were the OFT to find subsequently that the fees were unfair, and were the banks to fail to reach an agreement on fair charges, then the OFT will ask that the scope of the court hearing be broadened to allow a further judgment.
Banks have been paying refunds to many thousands of customers who have been demanding compensation for excessive charges. Last year a Norfolk business owner reclaimed a record £35,000 from his bank.
However, in some county court cases brought by customers, judges have ruled in favour of the banks.
Pending the outcome of the test case, claims for compensation have been placed on hold.
It is hoped the OFT case will clarify the legal position and introduce consistency into future rulings.
However, the British Bankers’ Association has warned that free banking could be placed in jeopardy and that banks could adopt “patterns abroad where banks charge for transactions such as ATM usage, direct debits and standing orders, in addition to an annual fee”.
If the OFT wins, the matter of compensation for customers will then fall to the FSA and the Financial Ombudsman Service.
The court is expected to give its judgment by April or May. Whatever the result, an appeal by the losers is guaranteed, which means that a final decision may not arrive until next year.
Date:14 January 2008
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