Bank charges test case gets underway but threatens free banking

18 January 2008 / by Rachael Stiles
The battle over whether or not the much disputed bank charges are unlawful got underway yesterday in what is said to be the biggest commercial legal case for more than 20 years, potentially changing the future direction of retail banking.

The case, which started yesterday (January 17), was brought against eight financial institutions by the Office of Fair Trading for what it believes are disproportionate and unfair charges for things like exceeding authorised overdrafts. It is intended to determine the legality of the charges and clarify them for customers by ruling whether or not they are subject to the Unfair Terms and Conditions Regulations.

The banking industry is said to have been making a profit of £3.5 billion a year from the charges, but thousands of customers started claiming them back when the OFT announced that they were unfair and unlawful in April 2006. Since the announcement of the test case, there has been a freeze on reclaiming the charges until the dispute has been settled in the High Court.

Yesterday, the eight firms – Barclays, Abbey, Clydesdale, HBOS, HSBC, Lloyds TSB, Royal Bank of Scotland and Nationwide Building Society – maintained that the penalty fees are not subject to normal rules of fairness, and insisted that it is within their rights to implement a charge of as much as £38 even if the customer has only become several pence overdrawn, which costs the bank just £2.50 according to experts.

While a victory for the OFT would also mean a victory for customers who will no longer face such elevated charges and stand to reclaim a reported £5 billion, financial experts and critics of the case are concerned that this will also mean a victory for banks which could recoup their lost profits from the charges by taking away free banking, penalising all customers, not just those which go into the red.

© Fair Investment Company Ltd