David Prosser: All roads lead to bank fee refunds

Outlook It is almost three years since The Independent began its campaign against the unauthorised borrowing charges levied by almost every current account provider in the land, and now the case has reached the House of Lords. Is it too much to hope that the row might finally be settled once and for all?

The short answer is yes – not least because the Lords are this week only deciding whether the Office of Fair Trading is entitled to rule on the dispute and not whether borrowing charges are illegal.

That the banks are still battling in the courts on both those fronts is interesting, given that the campaign they are fighting in the court of public opinion is quite different. There, bankers long ago gave up trying to convince people that charging them £40 for going a few pennies overdrawn was reasonable. Instead the message is much more sophisticated: borrowing charges enable current account providers to offer free banking, so defeat would mean the introduction of charges.

The implication is that under the current system, those who incur overdraft fees are subsidising those who keep their noses clean. Or, to put it another way, irresponsible borrowers help keep banking free for those who are better behaved.

There are differing opinions on how much revenue these charges actually do raise, but the case the banks are making in public rather undermines the one they offer in court. If borrowing fees finance free banking, the banks must be making a profit on each charge. That runs counter to basic consumer law, which says that penalties should be kept to a level that covers any costs incurred because of the customer breaching an agreement, rather than set so as to produce a profit.

It is this argument that originally persuaded many banks they had to refund bank charges, just as credit card companies did before them. The very small number of cases that have reached county courts have ended with a similar conclusion, which suggests that even if the Lords were to rule bank charges out of the OFT's jurisdiction, people would still have a decent crack in a legal action.

All roads, in other words, lead to an endgame in which banks have to compensate those customers who take the trouble to complain about charges they have paid in the past. There may be some delays and even diversions along the way, but the final destination remains unchanged.

Will the banks, then, carry through on their threat to curtail free banking? It's certainly possible, though given prevailing public opinion about the sector, abandoning free banking would be a tough PR move. But that doesn't mean no new charges: expect to see increases in less visible fees, such as credit card interest rates, a trend that has already begun.