Surprise victory for banks over charges

Millions of consumers' hopes of reclaiming unauthorised overdraft charges were dashed today when the banks won a surprise victory in the Supreme Court.

The UK's highest court ruled the charges do not come under "unfair contract" rules, meaning they are not subject to regulation by the Office of Fair Trading.



The ruling, which was described as a "bitter blow" for customers, who will not now be able to reclaim money they had paid out in the charges, ends a test case on the issue started more than two years ago.



More than one million claims have been put on hold since the case was launched in 2007, while a further eight million people are estimated to have paid the charges since July 2001, but not yet submitted a claim to get their money back.



Which? chief executive Peter Vicary-Smith said: "This is a bitter blow for the millions of people who have been patiently waiting to get their bank charges back.



"Not only does it give banks licence to charge what they like for unauthorised overdrafts, but it could have ramifications for other areas of personal finance.



"The banks now have no excuse for introducing other fee charges."



But the ruling was better news for consumers who do not breach their overdraft limit or go into the red without permission, as it was feared a verdict against the banks would have heralded the end of free banking in the UK.



Unauthorised overdraft charges generate around £2.6bn of revenue a year for banks.



Industry commentators had warned that if the banks lost this lucrative income stream they would look for other ways to recoup it, such as through imposing a flat monthly fee on current account customers or charging for every transaction people carried out.



The Supreme Court also offered a glimmer of hope to consumer groups, saying that although unauthorised overdraft charges do not come under the "unfair contract" rules, the OFT may be able to assess them under other criteria.



The OFT said it was now considering the details of the judgment before it made a decision on whether or not to continue its investigation into the charges. It plans to make a statement on the issue next month.



Martin Lewis, creator of MoneySavingExpert.com, said: "It wasn't a loss, the OFT fought on the wrong clause.



"The initial shock reaction by the crowd in the court, thinking that the banks had won, obscured what was perhaps the most important part of the judge's final statement, that the OFT may be able to look at fairness by another route."



Meanwhile, the Government said it was "determined" to ensure the system of unauthorised overdraft charges was made fairer for consumers in the future.



Sarah McCarthy-Fry, Exchequer Secretary to the Treasury, said: "The Government will work with the OFT and FSA to reach a new framework for fairer bank charges going forward."



She said it would try to reach a voluntary agreement with the banks, but warned that the Government would "take action" if this did not work.



Customers who go into unauthorised overdraft or breach their agreed limit can be charged as much as £35 or more for a single bounced payment. Campaigners claim the actual cost to the banks could be as little as £2.50.



But many of the high street banks had already changed the structure of the fees they charge people who go into the red, with or without permission, before today's ruling.



Prior to refund claims being frozen, some banks had already paid out more than £559 million to customers who complained about the charges.



Consumers who have already received refunds will not have to repay them as a result of today's ruling.



The test case was brought jointly by the OFT and Abbey, Barclays, Clydesdale, Halifax Bank of Scotland and Lloyds TSB, which are now part of the same group, HSBC, Royal Bank of Scotland Group and Nationwide Building Society.



Welcoming today's ruling, Angela Knight, chief executive of the British Bankers' Association, said: "The thing that is important about today's outcome is that there is clarity now in the law."



She added: "The banks do recognise the concerns of their customers and the wider concerns that have been raised by this case on unauthorised overdraft charges and we want to sort out this issue."

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

PROMOTED VIDEO
News
i100
News
i100
Arts and Entertainment
Eleanor Catton has hit back after being accused of 'treachery' for criticising the government.
booksCatton said New Zealand was run by profit-obsessed politicians
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

    Recruitment Genius: Software Development Manager

    £40000 - £50000 per annum: Recruitment Genius: This is an exciting opportunity...

    Ashdown Group: Product Manager - (Product Marketing, Financial Services)

    £30000 - £35000 per annum + Benefits: Ashdown Group: Marketing Manager - Marke...

    Recruitment Genius: Compliance Assistant

    £13000 per annum: Recruitment Genius: This Pension Specialist was established ...

    Ashdown Group: Market Research Executive

    £23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...

    Day In a Page

    Isis hostage crisis: The prisoner swap has only one purpose for the militants - recognition its Islamic State exists and that foreign nations acknowledge its power

    Isis hostage crisis

    The prisoner swap has only one purpose for the militants - recognition its Islamic State exists and that foreign nations acknowledge its power, says Robert Fisk
    Missing salvage expert who found $50m of sunken treasure before disappearing, tracked down at last

    The runaway buccaneers and the ship full of gold

    Salvage expert Tommy Thompson found sunken treasure worth millions. Then he vanished... until now
    Homeless Veterans appeal: ‘If you’re hard on the world you are hard on yourself’

    Homeless Veterans appeal: ‘If you’re hard on the world you are hard on yourself’

    Maverick artist Grayson Perry backs our campaign
    Assisted Dying Bill: I want to be able to decide about my own death - I want to have control of my life

    Assisted Dying Bill: 'I want control of my life'

    This week the Assisted Dying Bill is debated in the Lords. Virginia Ironside, who has already made plans for her own self-deliverance, argues that it's time we allowed people a humane, compassionate death
    Move over, kale - cabbage is the new rising star

    Cabbage is king again

    Sophie Morris banishes thoughts of soggy school dinners and turns over a new leaf
    11 best winter skin treats

    Give your moisturiser a helping hand: 11 best winter skin treats

    Get an extra boost of nourishment from one of these hard-working products
    Paul Scholes column: The more Jose Mourinho attempts to influence match officials, the more they are likely to ignore him

    Paul Scholes column

    The more Jose Mourinho attempts to influence match officials, the more they are likely to ignore him
    Frank Warren column: No cigar, but pots of money: here come the Cubans

    Frank Warren's Ringside

    No cigar, but pots of money: here come the Cubans
    Isis hostage crisis: Militant group stands strong as its numerous enemies fail to find a common plan to defeat it

    Isis stands strong as its numerous enemies fail to find a common plan to defeat it

    The jihadis are being squeezed militarily and economically, but there is no sign of an implosion, says Patrick Cockburn
    Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action

    Virtual reality: Seeing is believing

    Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action
    Homeless Veterans appeal: MP says Coalition ‘not doing enough’

    Homeless Veterans appeal

    MP says Coalition ‘not doing enough’ to help
    Larry David, Steve Coogan and other comedians share stories of depression in new documentary

    Comedians share stories of depression

    The director of the new documentary, Kevin Pollak, tells Jessica Barrett how he got them to talk
    Has The Archers lost the plot with it's spicy storylines?

    Has The Archers lost the plot?

    A growing number of listeners are voicing their discontent over the rural soap's spicy storylines; so loudly that even the BBC's director-general seems worried, says Simon Kelner
    English Heritage adds 14 post-war office buildings to its protected lists

    14 office buildings added to protected lists

    Christopher Beanland explores the underrated appeal of these palaces of pen-pushing
    Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

    Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

    Scientists unearthed the cranial fragments from Manot Cave in West Galilee