The bank charges ruling explained


What did the Supreme Court rule?

In one of its first judgments, the newly-formed Supreme Court has rejected the two year court battle against the banks over unauthorised borrowing fees – charges of up to £38 a time for slipping into the red without permission.

Who brought the case?

The Office of Fair Trade (OFT), which believes the fees are too high, had brought the test case against seven banks and one building society - RBS, HSBC, Barclays, Lloyds, HBOS, Abbey National, Clydesdale, and Nationwide Building Society



Was the ruling a surprise?

Yes. The OFT had won two earlier court hearings, at the High Court in April 2008 and at the Court of Appeal in February 2009. Commentators had expected the banks to lose again.



Was it close?

Not in the slightest. The five judges ruled unanimously in favour of the banks.



What did they say?

They said that the OFT was wrong to claim that the charges could be assessed under a law under an obscure law, the Unfair Contract Terms in Consumer Contracts Regulations 1999.



Why was that?

Because the OFT was claiming that the fees were additional to a main current account service, and, as such, could be checked for fairness under the law. The law lords rejected this. They ruled that overdraft fees were a core part of current accounts, so they could not be checked for fairness.



So the judges didn't say whether the charges were fair or unfair?

No. They pointed out very clearly that they were not ruling on whether the charges were fair. They were ruling on whether they could be assessed for fairness.



What does this mean for compensation claims?

It doesn’t look good for the 1 million complaints with the banks and the courts, which had been on hold while the test case rumbled through the courts. The ruling would suggest that claims for compensation will fail. But it may be possible they will still succeed.



How could that be so?

Because the judges stated that a fairness claim could not be brought under Regulation 6 (2) (b) of the legislation - the part used by the OFF - it might be brought under another part of the legislation, Regulation 5. Regulation 5 states that charges not agreed individually (standard terms and contracts) should “not cause a significant imbalance to the detriment of the consumer.”



So customers might still win?

Possibly, if customers were to lodge new court claims under this provision, which has not been tested in the courts. After all, bank customers paying big fees for unauthorised overdrafts are subsidising customers in credit who enjoy free banking. This might be a "significant imbalance to the detriment of the customer’



Could OFT could use this too?

Potentially, yes. The OFT is considering what to do.



What does the Government say?

It says the banks should not sting customers with excessive fees, hinting it might yet take action to remedy the issue.

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