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."
- 1 Fifty Shades of Grey movie trailer released: First look at Jamie Dornan as Christian Grey
- 2 Is Gideon Levy the most hated man in Israel or just the most heroic?
- 3 50 books for students to read this summer: From Ernest Hemingway to Gillian Flynn
- 4 Students offered grants if they tweet pro-Israeli propaganda
- 5 Israel has discovered that it's no longer so easy to get away with murder in the age of social media
Malaysia Airlines MH17 crash: Vladimir Putin is given 'one last chance' to end hostilities in Ukraine
The 'scroungers’ fight back: The welfare claimants battling to alter stereotypes
The truth about conspiracy theories is that some require considering
Arizona execution lasts two hours as killer Joseph Wood left 'snorting and gasping' for air
Malaysia Airlines MH17 crash: Ukrainian military jet was flying close to passenger plane before it was shot down, says Russian officer
Malaysia Airlines MH17 crash: Massive rise in sale of British arms to Russia
iJobs Money & Business
£18000 - £20000 per annum + OTE £25K: SThree: SThree Group has been well estab...
competitive: Progressive Recruitment: This really is a fantastic chance to joi...
£40000 - £60000 per annum + BONUS + BENEFITS: Harrington Starr: CXL, Triple Po...
£60000 - £75000 per annum + BONUS + BENEFITS: Harrington Starr: Business Anal...
Day In a Page
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village
A secluded seven-bedroom detached house with large private garden, £490,000
A three-bedroom cottage overlooking Sarratt village green with open fires and solid oak floors
A three-bedroom maisonette flat in a Grade I-listed, Georgian townhouse in a sought-after location
A one-bedroom apartment located within a private gated development, north of Turnham Green
Look forward to a brighter future at two-bedroom Sunny Cottages, ideal for Londoners looking to downsize
A three-bedroom red-brick cottage with outbuildings and pretty gardens, £200,000
This three-bedroom flat within a former textile factory spans the corner of the fourth floor and has a balcony
A charming four-bedroom Oxfordshire cottage with oak floors and chunky-beamed ceilings, £465,000
A beautiful one-bed flat in a sought-after portered block, with access to Norland Square communal gardens
A one-bedroom flat within a Sixties school conversion with high-spec design and open-plan kitchen, close to Lambeth North Tube, £435,000
A 17th century four-bedroom house, with open fireplaces, cellar and pool, £600,000
A three-bedroom, coach house with luxury open-plan living space and contemporary breakfast bar