OFT case on unfair bank charges starts today

17 January 2008 / by Rachel Mason
The Office of Fair Trading's test case on unauthorised bank default charges will begin today at 10.30am. The case, which will take place at the International Dispute Resolution Centre, was originally due to start yesterday, but was postponed due to "the Judge's prior commitments running over."

The case will see the OFT take on Abbey, Barclays, Clydesdale, HSBC, HBOS, Lloyds TSB, Royal Bank of Scotland and Nationwide over the issue of unfair bank charges.

In the past, banks and building societies were charging up to £35 to their customers for things like exceeding an overdraft limit or a bounced cheque. But in April 2006, the OFT deemed this level of charge to be unlawful, saying that such although a charge for breaking the terms of your account is legal, it should only represent the administration costs involved in dealing with the breach in question; a letter being sent out to the customer informing them that they had gone over their overdraft limit.

The OFT stated that it does not cost £35 to send a letter, and therefore, that such charges were unfair and unlawful. Many customers then started claims against their banks, demanding refunds for unfair banks fees they had paid. Around £1billion has been claimed back so far, but it was decided that there needed to be a lawful judgment on the issue, so there is a freeze on claims until the outcome of the test case.

"The High Court test case, which is a key part of the investigation, is seeking to establish the preliminary legal principle of whether the provisions of the OFT’s Unfair Terms in Consumer Contracts Regulations that deal with unfairness apply," said the OFT in a statement.

"It will also address the additional point of law of whether the charges can be a penalty at common law. It will not lead to a judgment as to whether charges themselves are fair or not. The OFT will decide after the initial judgment what steps to take should it win the test case and conclude from its financial investigation that any of the charges are unfair."

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