Banks face D-Day over unfair charges

The Supreme Court decision on bank charges is due. What could it mean for you? Chiara Cavaglieri and Julian Knight report

The conclusion of the legal battle over bank charges on customers for going into overdraft has been a long time coming. The epic fight between the Office of Fair Trading (OFT) and Abbey, Barclays, Clydesdale, HBOS, HSBC, Lloyds, Nationwide BS and RBS/NatWest will finally come to a head on Wednesday. The newly formed UK Supreme Court will decide then on the appeal brought by the bankers against earlier rulings that their overdraft charges can be assessed by the OFT for fairness.

If the banks lose on Wednesday, they could have to repay anything up to a massive £20bn in fees levied on customers for being overdrawn in the past six years. But more is at stake than simply money.

"I would be amazed if the Supreme Court didn't uphold the earlier decisions. It would be a disaster. There would be no legal basis for the OFT to intervene and the public would be left with no protection," says Mike Dailly, principal solicitor at the Govan Law Centre, who has recently been appointed to the Financial Services Authority consumer council.

When the High Court case between the banks and the OFT started in July 2007, it followed a massive rebellion by consumers. Hundreds of thousands of unhappy customers were in the process of taking their banks to court for the return of fees incurred for being overdrawn.

The FSA then imposed a freeze on all these claims, which runs until January 2010. In the meantime, while the case has been grinding on, the banks have continued to level exorbitant fees for going even a few pence overdrawn without permission. "Banks have stopped people from being able to get their money back. In the meantime, they have continued charging, business as usual, so it's been quite a stroke of genius to rip off the great British public," says Mr Dailly.

With mounting public pressure, Wednesday's outcome is predicted by most to fall firmly in the favour of the OFT. But if this is the case, what are the ramifications for consumers?

Many are hoping that banks will immediately take steps to reduce their fees. Ahead of the ruling and perhaps pre-empting the outcome, Santander announced the launch of its Zero current account, available from January 2010 for its current and new mortgage customers. This account has no overdraft fees so if customers go overdrawn they pay only a market leading rate of 12.9 per cent. In comparison, NatWest Current Plus Account customers pay a monthly unauthorised overdraft fee of £20 as well as £15 for paid transactions when overdrawn and a rate of 19.24 per cent.

Reduced fees aside, consumers affected by exorbitant fees in the past will be far more concerned with the issue of getting their money back. The British Bankers' Association (BBA) has been keen to play down the potential for a ruling in favour of the OFT to lead to immediate refunds.

"It's not the case that after next week anyone will be in line for a Christmas windfall," says Brian Capon, spokesman at the BBA. "At this stage, it simply means that a decision will be made as to whether the OFT can deem the fees fair or unfair. I wouldn't want to speculate about what might go on from there."

The FSA is following a similar line and insisted that its only responsibility is for the freeze on claims and nothing else until the OFT has completed its parallel investigation into the unfairness of overdraft charges. However, consumer groups contend that an outcome in favour of the OFT will undoubtedly start the ball rolling for customers to get their money back. After the FSA waiver in July 2007, more than one million people have been left with claims for an estimated £1.7bn on hold. Although this case is deciding only whether the OFT has the legal right to assess whether the charges are fair, if the Court rules that they do indeed have this right, the OFT is widely expected to confirm its original view that fees of up to £39 for unauthorised overdrafts are out of order. A much lower cap on fees is likely to be imposed.

"The OFT has already announced its preliminary findings that it thinks the charges are unfair, so a decision in its favour would certainly bring consumers an enormous step closer to getting their money back," says Mark Gander from the anti-bank charges lobbying Consumer Action Group.

In theory, it could lead to the FSA lifting the waiver on claims and introducing a repayment scheme for customers. However, banks are still free to refer the case to the European court, or perhaps more likely, they could challenge the OFT on its findings of unfairness in order to drag out the issue for years, leaving customers dangling. Although this remains a possibility, with political pressure mounting and all three party leaders saying they want a speedy resolution, the banks may decide the price of continued intransigence is too high.

Where there are real concerns, however, is in the finer details of potential repayments. There have been indications that the OFT will introduce a "fair rate" and consumers will be repaid the difference between this and the actual charge. The issue of extra compensation could cover any number of situations, from those who have been forced to take out loans to deal with bank charges or consumers who have had their credit record marked.

"This is an extremely complicated situation and there may be all sorts of unexpected problems. There are just so many questions and the fallout from this is unimaginable. How on earth are they ever going to make reparation for this?" asks Mr Gander.

Even worse, if the banks plead that to repay charges will damage their long-term stability, they may look to forge some form of agreement with the FSA, which could mean that they pay only a fraction of the charges they have levied. "I suspect the banks will look at cutting a deal with the OFT. There's so much money at stake. I don't think for a second the banks are going to hand people all their money back," says Mr Dailly.

The implications of the ruling could be colossal. "Banks are already desperately trying to recapitalise and will surely try to replace this income in different ways, which could be charges on current accounts or perhaps higher interest charges on loans," says Danny Cox from independent financial adviser Hargreaves Lansdown. "We should bear in mind that we own some of the banks that would be repaying this money."

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

Voices
Barn owls are among species that could be affected
charity appeal
News
Sarah Silverman (middle) with sister Reform Rabbi Susan Silverman (right) and sister actress Laura Silverman (left) at Jerusalem's Western Wall for feminist Hanuka candle-lighting ceremony
peopleControversial comedian stages pro-equality Hanukkah lighting during a protest at Jerusalem's Wailing Wall
Arts and Entertainment
The Bach Choir has been crowned the inaugural winner of Sky Arts’ show The Great Culture Quiz
arts + ents140-year-old choir declared winner of Sky Arts' 'The Great Culture Quiz'
Sport
After another poor series in Sri Lanka, Alastair Cook claimed all players go through a lean period
cricketEoin Morgan reportedly to take over ODI captaincy
PROMOTED VIDEO
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Carlton Senior Appointments: Private Banking Manager - Intl Bank - Los Angeles

    $200 - $350 per annum: Carlton Senior Appointments: Managing Producer – Office...

    Carlton Senior Appointments: San Fran - Investment Advisor – Ind Advisory Firm

    $125 - $225 per annum: Carlton Senior Appointments: San Fran - Investment Advi...

    Sheridan Maine: Commercial Finance Manager

    Up to £70,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

    Sheridan Maine: Regulatory Reporting Accountant

    Up to £65,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

    Day In a Page

    Homeless Veterans appeal: 'You look for someone who's an inspiration and try to be like them'

    Homeless Veterans appeal

    In 2010, Sgt Gary Jamieson stepped on an IED in Afghanistan and lost his legs and an arm. He reveals what, and who, helped him to make a remarkable recovery
    Could cannabis oil reverse the effects of cancer?

    Could cannabis oil reverse effects of cancer?

    As a film following six patients receiving the controversial treatment is released, Kate Hilpern uncovers a very slippery issue
    The Interview movie review: You can't see Seth Rogen and James Franco's Kim Jong Un assassination film, but you can read about it here

    The Interview movie review

    You can't see Seth Rogen and James Franco's Kim Jong Un assassination film, but you can read about it here
    Serial mania has propelled podcasts into the cultural mainstream

    How podcasts became mainstream

    People have consumed gripping armchair investigation Serial with a relish typically reserved for box-set binges
    Jesus Christ has become an unlikely pin-up for hipster marketing companies

    Jesus Christ has become an unlikely pin-up

    Kevin Lee Light, aka "Jesus", is the newest client of creative agency Mother while rival agency Anomaly has launched Sexy Jesus, depicting the Messiah in a series of Athena-style poses
    Rosetta space mission voted most important scientific breakthrough of 2014

    A memorable year for science – if not for mice

    The most important scientific breakthroughs of 2014
    Christmas cocktails to make you merry: From eggnog to Brown Betty and Rum Bumpo

    Christmas cocktails to make you merry

    Mulled wine is an essential seasonal treat. But now drinkers are rediscovering other traditional festive tipples. Angela Clutton raises a glass to Christmas cocktails
    5 best activity trackers

    Fitness technology: 5 best activity trackers

    Up the ante in your regimen and change the habits of a lifetime with this wearable tech
    Paul Scholes column: It's a little-known fact, but I have played one of the seven dwarves

    Paul Scholes column

    It's a little-known fact, but I have played one of the seven dwarves
    Fifa's travelling circus once again steals limelight from real stars

    Fifa's travelling circus once again steals limelight from real stars

    Club World Cup kicked into the long grass by the continued farce surrounding Blatter, Garcia, Russia and Qatar
    Frank Warren column: 2014 – boxing is back and winning new fans

    Frank Warren: Boxing is back and winning new fans

    2014 proves it's now one of sport's biggest hitters again
    Jeb Bush vs Hillary Clinton: The power dynamics of the two first families

    Jeb Bush vs Hillary Clinton

    Karen Tumulty explores the power dynamics of the two first families
    Stockholm is rivalling Silicon Valley with a hotbed of technology start-ups

    Stockholm is rivalling Silicon Valley

    The Swedish capital is home to two of the most popular video games in the world, as well as thousands of technology start-ups worth hundreds of millions of pounds – and it's all happened since 2009
    Did Japanese workers really get their symbols mixed up and display Santa on a crucifix?

    Crucified Santa: Urban myth refuses to die

    The story goes that Japanese store workers created a life-size effigy of a smiling "Father Kurisumasu" attached to a facsimile of Our Lord's final instrument of torture
    Jennifer Saunders and Kate Moss join David Walliams on set for TV adaptation of The Boy in the Dress

    The Boy in the Dress: On set with the stars

    Walliams' story about a boy who goes to school in a dress will be shown this Christmas