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Decision over bank charges looms

09 January 2008 / by Rachael Stiles
The long battle over whether or not the much-contested unfair bank charges are lawful or not will come to a head next week when the case goes to the High Court.

It has been almost two years since the OFT declared that the charges implemented for exceeding overdraft limits without authorisation and bouncing cheques are unfair and illegal; since then thousands of customers have already claimed back £800 million from their banks. However, the OFT put a freeze on further claims until the legality of such charges have been clearly defined in court.

The OFT plans to argue that the charges are unfair because they are not explained in intelligible language, that they are not part of a contract and that the circumstances which lead to them being incurred fall outside of the normal terms and conditions, charges do not relate to a price or remuneration for goods or services.

The banks have maintained that the charges are fair and are implemented in order to recoup the administration costs incurred as a result of the customer going outside of the terms and conditions of their account. The main eight financial institutions – Abbey, Barclays, HBOS, Clydesdale, HSBC, RBS-Natwest, Lloyds TSB and Nationwide Building Society – are standing by the charges, refusing an offer from the OFT to reduce them and avoid further action.

The court case starts on Monday, January 14, and could go one for several weeks. If the OFT is successful in this first stage of proceedings, it could start a second court action or make a ruling which will force the banks to refund their customers – which reportedly could amount to about £14.7 billion – and dramatically reduce the fees they charge.

Last year, John Fingleton, OFT Chief Executive said: "The UK retail banking market performs well in many dimensions, especially relative to international norms. However, the issue of bank current account charges is a matter of real concern to the banks' customers, and raises wider questions about competition and transparency of pricing.

"The initial scoping work we have undertaken has demonstrated to us that this is not only an issue for those people who are being charged, but also for customers who are not defaulting on their bank accounts."

While the reclaiming process is still frozen until the legality of the charges is determined, customers can still make a claim to get a bank charges refund and await the court's decision.

© Fair Investment Company Ltd