Banks go on the offensive against customers

Anger at Lloyds' attempt to strike out legal challenges but rivals expected to follow suit
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The Independent Online

Lloyds Banking Group was facing a furious backlash from customers last night after announcing it would ask the courts to strike out thousands of legal claims against it just two days after a landmark legal judgment in the overdraft fees case.

The bank, which, following a series of government bailouts is now 43 per cent-owned by the taxpayer, was accused of acting with indecent haste following a judgment handed down on Wednesday by the Supreme Court, which said the Office of Fair Trading was not entitled to investigate the fairness of unauthorised borrowing fees.

There was particular surprise that the bank leading the charge to snuff out compensation claims is an institution that had to be partly nationalised in order to save it from collapse following the credit crisis.

"It is disappointing that the ink is barely dry on the judgment and Lloyds is already rushing to do this," said Adam Williams, principal campaigner at the consumer group Which? "We very much doubt whether they would have moved so quickly had the judgment gone the other way, given how they have dragged their feet throughout this affair."

Martin Lewis, of – one of the leaders of a campaign for a refund of bank charges for up to 8 million people caught out after exceeding overdraft limits – said customers were not being given time to consider their position. Mr Lewis, whose group has hired a leading banking QC to investigate potential alternative routes to redress for customers, said: "What I find disingenuous is that Lloyds knows we are taking legal advice. One hopes the bank is not trying to capitalise on its time advantage, because that would be invidious."

Lloyds is the first bank to have responded to Wednesday's ruling with legal action. Yesterday, it argued that the ruling against the OFT effectively invalidated most of the complaints made against it by customers seeking a refund of unauthorised borrowing fees already levied. As a result, it is to ask the courts to dismiss all complaints filed using the sort of standard template letters that millions of people have downloaded from the internet, or adapted from models published in newspapers such as The Independent – which has fought for compensation for bank customers.

The bank published a statement on its LloydsTSB and HBOS websites pointing out that the chief City regulator, the Financial Services Authority, had lifted its temporary freeze on complaints about overdraft charges.

"We will be asking the county and Sherriff Courts to apply the principles of the Supreme Court judgment and for cases to be withdrawn where appropriate," the bank added.

Banking industry sources said that other current-account providers were likely to follow Lloyds' lead, with executives from across the sector now in talks about a common approach, but there was widespread surprise that one bank had chosen to move so speedily.

Michelle Slade, of the personal finance group Moneyfacts, said: "Lloyds has not wasted much time: there are already a lot of people annoyed about the judgment in this case and the speed of this is going to annoy people even further."

A spokesman for the Office of Fair Trading said that it had not yet ruled out a fresh legal challenge to unauthorised borrowing charges. "We are still considering our position," he said. "This is a matter for the banks, but it may not be possible for the courts to strike out these cases en masse, because they are all individual cases."

County court judges have been issued with no guidance by the Supreme Court on how they should interpret Wednesday's judgment, though they have been told to wait to see whether the banks and their customers come to some form of agreement. However, legal experts say the ruling will make it very difficult for the complaints to succeed, because they were filed on the assumption that it was possible for regulators to investigate unfair charges. The Financial Ombudsman Service has also warned that it will now have to reject many of the complaints made to it about bank charges.

Lloyds is the UK's biggest provider of current accounts and overdrafts, with its market lead having been cemented by the takeover in September of the Halifax Bank of Scotland Group. That deal was cleared by the competition authorities because it was seen as a rescue of HBOS, which had come under huge pressure at the height of the credit crunch. It emerged earlier this week that HBOS had to borrow £25.4bn in emergency funding from the Bank of England last November in order to continue trading.

Lloyds Banking Group eventually benefited from an injection of billions of pounds of public money as part of a recapitalisation plan designed to put it on an even keel, leaving the taxpayer with a 43.4 per cent stake in it. It is currently in the process of raising more than £13bn from shareholders – including £5.7bn from the Government – further to shore up its finances in what will be the UK's largest ever rights issue.