Talks between high street banks and the Office of Fair Trading (OFT) on lowering the £2.6bn unauthorised borrowing charges on current accounts could lead to a breakthrough in months, it was revealed today.
The OFT announced the talks as it confirmed it would abandon its two-and-a-half year legal battle against six banks and one building society over the fees following a defeat at the Supreme Court last month.
The OFT, which pointed out the Government had threatened to legislate unless the banks changed their fees, said it hoped to report back on its progress in March.
Separately it said that it might still be possible for individuals to launch legal actions for refunds of fees of up to £35 charged for borrowing money without permission.
Having studied the Supreme Court ruling on November 25, the OFT said it believed any future action under the 1974 Consumer Credit Act – rather than the 1999 Unfair Terms in Consumer Contracts Regulations, which it had previously used – was likely to fail.
However it expressed ongoing “significant concerns” about the personal current account market, and planned to discuss a range of options from voluntary measures to legislative change with banks and consumer groups.
Current account customers who go into unauthorised overdraft or breach their agreed limit can be charged as much as £35 for a single bounced payment, although campaigners claim the actual cost to the banks could be as low as £2.50.
Banks earn around a third of their £8bn revenues for personal current account from the charges, which the OFT complained were “difficult to understand, not transparent and not subject to effective consumer control”.
“We remain deeply concerned that the market for personal current accounts is not working well for consumers and does not give banks sufficient incentives to compete,” said John Fingleton, the OFT’s chief executive.
“We are committed to securing significant changes to unarranged overdraft charges going forward, whether through voluntary agreement with the banks or by other means.”
The watchdog stressed that its decision “should not be treated as advice” to customers considering bringing an individual action against financial providers under the Consumer Credit Act, which would be decided on the particular facts in each case.
The British Bankers’ Association welcomed the OFT’s decision. “The banks understand customers' concerns, and talk to their customers regularly and develop accounts in line with feedback,” the BBA said, adding that it would enter talks with the OFT.
It defended the current account market as “competitive and dynamic.”
The end of the test case means one million claims for refunds currently with the banks will be rejected and scuppers the prospect of automatic payouts of billions of pounds for nine million customers who have paid the charges since 2001.
Philip Cullum, acting chief executive of Consumer Focus, said: “This decision will add to the public frustration towards the banking sector. Banks must realise that consumer confidence in the sector is incredibly weak and that real changes are needed.”
The Liberal Democrat leader Nick Clegg described the ruling as “extremely disappointing.” “Having come so close to overhauling an unfair system of charging that penalises vulnerable groups of people, I know that the campaign will not just stop. The Liberal Democrats will continue the fight for fair bank charges in Parliament and push for a change in the law if necessary so that high street banks cannot keep ripping off their customers.”
Which? chief executive Peter Vicary-Smith said: “Consumers have been left confused by this decision. It looks like the big refund war is over but there is a narrow possibility that some people might be able to claim back their bank charges. The situation needs clarification and we’re looking into it as a matter of urgency.
He advised people to sit tight and avoid claims handlers, who charge a fee for doing something consumers could do themselves.
During the bank charge revolt, which was championed by The Independent, customers received an estimated £1bn in goodwill payments. Many banks have also lowered their fees, though they have sought to introduce more charges for running current accounts, threatening the end of ‘free banking’ for those in credit.
Martin Lewis, of Moneysavingexpert, said it had been the most successful campaign since the Poll Tax riots in 1990. He said: “We have seen £1bn paid back and many banks – but not all, sadly – have lowered their charges. We have seen people realise that bank managers are not people in bowler hats there to help them but are there to make money from them, and put all three together and it’s been a very successful campaign.”
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