The Office of Fair Trading pledged yesterday to decide by mid-July whether bank borrowing charges are unfair and how much compensation customers should receive. The regulator was pressed into giving the commitment by a High Court judge, who said courts considering such cases and customers making claims for refunds had already faced significant delays due to the legal impasse in the dispute.
The OFT gave its commitment to Mr Justice Andrew Smith yesterday afternoon after its barrister had initially warned that he did not know how long the regulator's ongoing inquiry into unauthorised borrowing charges would take.
"We are facing a lot of litigants who have not had their claims struck out and who should be in a position to pursue their claims," Mr Justice Smith said. "How long should we hold up the county court litigation? Are we talking months, years or weeks?"
Having been urged to set a deadline for a decision, the OFT's legal representatives returned to court later in the day and said they would give the banking sector its verdict during the second week of July. If banks dispute the decision, the two sides pledged to return to court before Christmas to settle the question.
The OFT has been conducting an investigation for more than a year into whether the charges – often more than £30 – that banks levy on customers who exceed current account overdraft limits or bounce cheques are lawful.
Last month, Mr Justice Smith said the OFT had a legal right to consider what level of charges was fair – and to order compensation if necessary – under consumer contract laws enacted in 1999. However, the OFT has until now been unable to say when it would reach a decision, leaving hundreds of thousands of bank customers who have already filed claims for compensation facing uncertainty over when their cases would be heard.
Despite yesterday's commitments, customers may still face a long wait for compensation. Mr Justice Smith also gave the eight banks covered by test cases on borrowing charges leave to appeal last month's ruling. The appeal will be heard this autumn, but the case could drag on into next year if subsequent appeals by either side are launched in courts at different levels up to the House of Lords.
The appeal was criticised by consumer groups, which accused the banks of deliberately spinning out the dispute to put off paying compensation for as long as possible. Phil Jones, of Which?, said: "This has taken far longer than we had hoped, so the OFT's move is a positive one, but we are disappointed in the banks, which we had called on not to continue stringing this out."
Nevertheless, yesterday's commitment by the OFT represents a breakthrough for customers seeking refunds that could cost the banking sector up to £3.5bn. A spokesman for the regulator said: "We have always made it clear that any appeal by the banks would not prevent us from considering the fairness issue."
The OFT was also buoyed by the banks' decision to accept that verdicts in the test cases would be binding on previous terms and conditions on current accounts, as well as the detail in the cases under consideration.
In theory, the OFT could now come to a view about the compensation owed to customers only for the courts to rule the 1999 consumer contracts legislation does not give it the right to use its authority in this way. However, the OFT's pledge also means the regulator will be in a position to order compensation payments – assuming it deems charges unfair, as it has in the credit card sector – as soon as the courts give a final verdict on its jurisdiction.