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OFT victorious in bank charges test case

24 April 2008 / by Rachael Stiles
The Office of Fair Trading has been successful in its high court case against the banks regarding the excessive charges which they levy against customers.

"This is an important early milestone for the OFT and our investigation into this area of high consumer interest," said the OFT.

Bank account holders have been paying as much as £39 a time for exceeding their overdraft limit, a bounced cheque or returned direct debits because of insufficient funds.

The banks were raking in £3.5 billion a year from their customers, for charges which the OFT said should only cover the costs incurred by the bank when someone goes outside the conditions of their contract. Administration fees cost as little as £2, so the fees actually being charged were therefore disproportionate and unfair, the OFT argued.

The OFT accused seven of the UK's biggest banks and one building society - Barclays, Abbey, Clydesdale, HBOS, HSBC, Lloyds TSB, Royal Bank of Scotland and Nationwide – of treating their customers unfairly under the Unfair Terms in Consumer Contracts Regulation (UTCCR) 1999.

The banks, however, maintained that the fees were "valid and enforceable", and refused the OFT's offer of lowering the charges in order to avoid the issue going all the way to the high court.

After high court judge Mr Justice Andrew Smith's decision today, consumer contract regulations can be applied to determine whether or not the charges are fair; this paves the way for action to be taken to see them reduced to better reflect the cost to the banks.

Thousands of customers had been reclaiming bank charges since the beginning of 2006 on the grounds that they were excessively high. The banks returned an estimated £784million before the Financial Services Authority put a freeze on claims until the issue was clarified by law - this was because some customers were reclaiming thousands of pounds while others were unsuccessful and the FSA thought it was unfair not to have a universal rule on the subject.

Consumers will be hopeful that they can now continue to reclaim the fees, but it's not over yet; a further hearing in which the court will decide whether the charges are unfair and, if so, what a fair charge should be is due. This could delay the claims process, and dissatisfied customers are being urged not to expect an automatic payout.

Mr Justice Andrew Smith said: "This does not necessarily mean they [the charges] are unfair."

The OFT says it is aware that there is still some way to go. "We are now analysing the implications of the judgment for our overall investigation into the fairness of the terms," said a spokesman.

"There may need to be further hearings to determine any outstanding issues arising from the judgment. The timetable for next steps will be decided by the court at a hearing before the end of May."

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