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

News
Jacqueline Bisset has claimed that young women today are obsessed with being 'hot', rather than 'charming', 'romantic' or 'beautiful'
people
Arts and Entertainment
Lena Dunham
booksLena Dunham's memoirs - written at the age of 28 - are honest to the point of making you squirm
Arts and Entertainment
A bit rich: Maggie Smith in Downton Abbey
tvDownton Abbey review: It's six months since we last caught up with the Crawley clan
Sport
Frank Lampard and his non-celebration
premier leagueManchester City vs Chelsea match report from the Etihad Stadium
PROMOTED VIDEO
News
people
Life and Style
A new app has been launched that enables people to have a cuddle from a stranger
techNew app offers 'PG alternative' to dating services like Tinder
Sport
Greg Dyke insists he will not resign as Football Association chairman after receiving a watch worth more than £16,000 but has called for an end to the culture of gifts being given to football officials
football
Arts and Entertainment
Jake Quickenden sings his heart out in his second audition
tvX Factor: How did the Jakes - and Charlie Martinez - fare?
Sport
premier league
Arts and Entertainment
'New Tricks' star Dennis Waterman is departing from the show after he completes filming on two more episodes
tvOnly remaining original cast-member to leave crime series
Sport
Mario Balotelli celebrates his first Liverpool goal
premier leagueLiverpool striker expressed his opinion about the 5-3 thriller with Leicester - then this happened
News
Britain's shadow chancellor Ed Balls (L) challenges reporter Rob Merrick for the ball during the Labour Party versus the media soccer match,
peopleReporter left bleeding after tackle from shadow Chancellor in annual political football match
Arts and Entertainment
Female fans want more explicit male sex in Game of Thrones, George R R Martin says
tvSpoiler warning: Star of George RR Martin's hit series says viewers have 'not seen the last' of him/her
News
i100
News
i100
Sport
Plenty to ponder: Amir Khan has had repeated problems with US immigration because of his Muslim faith and now American television may shun him
boxing
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

    Senior BA - Motor and Home Insurance

    £400 - £450 Per Day: Clearwater People Solutions Ltd: **URGENT CONTRACT ROLE**...

    Market Risk & Control Manager

    Up to £100k or £450p/d: Saxton Leigh: My client is a leading commodities tradi...

    SQL Developer - Watford/NW London - £320 - £330 p/d - 6 months

    £320 - £330 per day: Ashdown Group: The Ashdown Group have been engaged by a l...

    Head of Audit

    To £75,000 + Pension + Benefits + Bonus: Saxton Leigh: My client is looking f...

    Day In a Page

    A roller-coaster tale from the 'voice of a generation'

    Not That Kind of Girl:

    A roller-coaster tale from 'voice of a generation' Lena Dunham
    London is not bedlam or a cradle of vice. In fact it, as much as anywhere, deserves independence

    London is not bedlam or a cradle of vice

    In fact it, as much as anywhere, deserves independence
    Vivienne Westwood 'didn’t want' relationship with Malcolm McLaren

    Vivienne Westwood 'didn’t want' relationship with McLaren

    Designer 'felt pressured' into going out with Sex Pistols manager
    Jourdan Dunn: Model mother

    Model mother

    Jordan Dunn became one of the best-paid models in the world
    Apple still coolest brand – despite U2 PR disaster

    Apple still the coolest brand

    Despite PR disaster of free U2 album
    Scottish referendum: The Yes vote was the love that dared speak its name, but it was not to be

    Despite the result, this is the end of the status quo

    Boyd Tonkin on the fall-out from the Scottish referendum
    Manolo Blahnik: The high priest of heels talks flats, Englishness, and why he loves Mary Beard

    Manolo Blahnik: Flats, Englishness, and Mary Beard

    The shoe designer who has been dubbed 'the patron saint of the stiletto'
    The Beatles biographer reveals exclusive original manuscripts of some of the best pop songs ever written

    Scrambled eggs and LSD

    Behind The Beatles' lyrics - thanks to Hunter Davis's original manuscript copies
    'Normcore' fashion: Blending in is the new standing out in latest catwalk non-trend

    'Normcore': Blending in is the new standing out

    Just when fashion was in grave danger of running out of trends, it only went and invented the non-trend. Rebecca Gonsalves investigates
    Dance’s new leading ladies fight back: How female vocalists are now writing their own hits

    New leading ladies of dance fight back

    How female vocalists are now writing their own hits
    Mystery of the Ground Zero wedding photo

    A shot in the dark

    Mystery of the wedding photo from Ground Zero
    His life, the universe and everything

    His life, the universe and everything

    New biography sheds light on comic genius of Douglas Adams
    Save us from small screen superheroes

    Save us from small screen superheroes

    Shows like Agents of S.H.I.E.L.D are little more than marketing tools
    Reach for the skies

    Reach for the skies

    From pools to football pitches, rooftop living is looking up
    These are the 12 best hotel spas in the UK

    12 best hotel spas in the UK

    Some hotels go all out on facilities; others stand out for the sheer quality of treatments