Battle against bank charges not over yet

Last week's Supreme Court ruling in favour of the banks doesn't mean customers should give up hope. Chiara Cavaglieri reports

Millions of consumers were dealt a crushing blow last week when the Supreme Court ruled in favour of the banks in the legal battle between the Office of Fair Trading (OFT) and eight high street banking institutions over the issue of unfair charges.

The UK's banks will have breathed a collective sigh of relief when the Court ruled that unarranged overdraft charges are not governed by fairness, under Regulation 6 of the Unfair Terms in Consumer Contracts Regulation of 1999 (UTCCR). With no legal leg to stand on, the OFT will struggle to continue in its separate investigation into the issue. Consumers are still free to pursue banks through the courts themselves, but with the OFT thwarted, any chance of success is, in effect, destroyed and hopes for remuneration of as much as £20bn in overdraft fees have been dashed.

"Not only does this give banks licence to charge what they like for unauthorised overdrafts, but it could have ramifications for other areas of personal finance," says Peter Vicary-Smith, the chief executive of consumer group Which?.

However, despite the obvious setback, consumers are being told there could be some light at the end of the tunnel. Political pressure on the banks is still firm with Liberal Democrat leader Nick Clegg responding to the ruling by demanding changes to the law. "Regardless of the legal position, it simply isn't right that someone on a low income should pay £25 or more to their bank just because they're overdrawn by a pound or two," he says. "The only way to protect millions of customers from being ripped off by their banks is to change the law."

More importantly, in the Supreme Court's judgment itself there were hints of a window of opportunity for the OFT to pursue the case further. Although all five Justices decreed that the charges cannot be assessed for fairness under Regulation 6 of the UTCCR, they said that there may be scope for the OFT to assess them on other grounds, notably under Regulation 5.

This regulation states that a contract can be regarded as unfair if it has not been "individually negotiated" and goes on to cause a "significant imbalance in the parties' rights and obligations arising under the contract". This means there is a chance that the OFT could use this clause to reignite its legal case against the banks because it does seem to offer some protection against costs which are disproportionately imposed on overdrawn customers to pay for an otherwise free banking system for everyone else. "I don't think this has finished at all. All those people with their claims stacked up on hold shouldn't give up hope yet," says Mr Gander.

If the OFT does decide to take this route, however, it may take a long time to get under way. For now, the OFT has said only that it will announce next month its final decision on whether to continue the investigation. Until then, consumers are being urged to do what they can to fight excessive bank charges by making sure they have the best current account.

"People should wake up to the fact that they don't have to stay with the same current account and should not be afraid to switch to get a better deal," says David Black, a banking special

ist at analysts Defaqto. Only about 6 per cent of people switch their current accounts every year, but for those who often find themselves overdrawn, having the wrong account can be a costly mistake. Clydesdale charges 18.85 per cent on authorised overdrafts and an eye-watering 29.99 per cent on unauthorised overdrafts. Going overdrawn without permission costs Clydesdale customers £25 a month, an extra £25 each time the overdraft increases and £35 for every bounced payment, in addition to paying the high rate of interest.

Anyone who uses an overdraft, even if only on occasion, must focus their attention on finding the cheapest overdraft rate. Spanish banking group Santander, which owns Abbey and Bradford & Bingley, made waves last week when it introduced the fee-free Zero account, due to be launched in January. Instead of being charged penalty fees for going into the red, Zero account holders will pay a flat interest rate of 12.9 per cent both on authorised and unauthorised overdrafts. Unfortunately, this is available only to current and new mortgage holders, so if a better mortgage deal can be found elsewhere, this will easily outweigh any benefits from the fee-free account.

Other accounts worth considering are the Premier and Premier Direct current accounts from Alliance & Leicester which set no overdraft charges for the first 12 months, then 50p per day up to a maximum of £5 per month. However, be warned that customers who breach the authorised overdraft limits will still be punished with penalty fees of £5 per day, up to a maximum of £100.

The key to making the most of a current account is to find one that suits the banking needs of the holder. Those who never use an overdraft and are always in the black should concentrate on finding generous in-credit rates.

"If you regularly keep a credit balance then opt for an account paying a competitive rate of credit interest," says Michelle Slade from financial comparison site Moneyfacts.co.uk. "Currently both the Alliance & Leicester, Premier Direct Current and the Abbey Current Account pay 6 per cent AER on balances up to £2,500."

Packaged accounts, which levy a monthly fee in exchange for a range of benefits such as travel insurance and breakdown cover, are another option. These accounts do come with a warning, though; anyone unlikely to make the most of all the extras is probably better off with a standard current account.

"Some accounts charge as much as £25 per month, so to make sure the account is cost effective you need to ensure you fully use the benefits," adds Ms Slade.

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

News
Jennifer Lawrence was among the stars allegedly hacked
peopleActress and 100 others on 'master list' after massive hack
Sport
Radamel Falcao
footballManchester United agree loan deal for Monaco striker Falcao
Sport
Louis van Gaal, Radamel Falcao, Arturo Vidal, Mats Hummels and Javier Hernandez
footballFalcao, Hernandez, Welbeck and every deal live as it happens
News
people'It can last and it's terrifying'
PROMOTED VIDEO
Voices
A man shoots at targets depicting a portrait of Russian President Vladimir Putin, in a shooting range in the center of the western Ukrainian city of Lviv
voicesIt's cowardice to pretend this is anything other than an invasion
News
i100
Arts and Entertainment
Alex Kapranos of Franz Ferdinand performs live
music Pro-independence show to take place four days before vote
Arts and Entertainment
booksNovelist takes aim at Orwell's rules for writing plain English
Arts and Entertainment
The eyes have it: Kate Bush
music
News
i100
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 Asset Manager

    £70000 - £75000 Per Annum: The Green Recruitment Company: Katie Robinson +44 (...

    Application Support Analyst / Junior SQL Server DBA

    £40000 - £45000 per annum: Ashdown Group: An established professional services...

    Trainee Recruitment Consultant - Birmingham - Real Staffing

    £18000 - £23000 per annum + Commission: SThree: Real Staffing are currently lo...

    Business Development Manager / Media Sales Exec

    £28 - 32k + Uncapped Commission: Guru Careers: A Business Development Manager ...

    Day In a Page

    Alexander Fury: The designer names to look for at fashion week this season

    The big names to look for this fashion week

    This week, designers begin to show their spring 2015 collections in New York
    Will Self: 'I like Orwell's writing as much as the next talented mediocrity'

    'I like Orwell's writing as much as the next talented mediocrity'

    Will Self takes aim at Orwell's rules for writing plain English
    Meet Afghanistan's middle-class paint-ballers

    Meet Afghanistan's middle-class paint-ballers

    Toy guns proving a popular diversion in a country flooded with the real thing
    Al Pacino wows Venice

    Al Pacino wows Venice

    Ham among the brilliance as actor premieres two films at festival
    Neil Lawson Baker interview: ‘I’ve gained so much from art. It’s only right to give something back’.

    Neil Lawson Baker interview

    ‘I’ve gained so much from art. It’s only right to give something back’.
    The other Mugabe who is lining up for the Zimbabwean presidency

    The other Mugabe who is lining up for the Zimbabwean presidency

    Wife of President Robert Mugabe appears to have her sights set on succeeding her husband
    The model of a gadget launch: Cultivate an atmosphere of mystery and excitement to sell stuff people didn't realise they needed

    The model for a gadget launch

    Cultivate an atmosphere of mystery and excitement to sell stuff people didn't realise they needed
    Alice Roberts: She's done pretty well, for a boffin without a beard

    She's done pretty well, for a boffin without a beard

    Alice Roberts talks about her new book on evolution - and why her early TV work drew flak from (mostly male) colleagues
    Get well soon, Joan Rivers - an inspiration, whether she likes it or not

    Get well soon, Joan Rivers

    She is awful. But she's also wonderful, not in spite of but because of the fact she's forever saying appalling things, argues Ellen E Jones
    Doctor Who Into the Dalek review: A classic sci-fi adventure with all the spectacle of a blockbuster

    A fresh take on an old foe

    Doctor Who Into the Dalek more than compensated for last week's nonsensical offering
    Fashion walks away from the celebrity runway show

    Fashion walks away from the celebrity runway show

    As the collections start, fashion editor Alexander Fury finds video and the internet are proving more attractive
    Meet the stars of TV's Wolf Hall... and it's not the cast of the Tudor trilogy

    Meet the stars of TV's Wolf Hall...

    ... and it's not the cast of the Tudor trilogy
    Weekend at the Asylum: Europe's biggest steampunk convention heads to Lincoln

    Europe's biggest steampunk convention

    Jake Wallis Simons discovers how Victorian ray guns and the martial art of biscuit dunking are precisely what the 21st century needs
    Don't swallow the tripe – a user's guide to weasel words

    Don't swallow the tripe – a user's guide to weasel words

    Lying is dangerous and unnecessary. A new book explains the strategies needed to avoid it. John Rentoul on the art of 'uncommunication'
    Daddy, who was Richard Attenborough? Was the beloved thespian the last of the cross-generation stars?

    Daddy, who was Richard Attenborough?

    The atomisation of culture means that few of those we regard as stars are universally loved any more, says DJ Taylor