Judge threatens banks with test case over 'illegal' charges

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Britain's largest banks were threatened yesterday with an imminent test case which aims at settle the growing number of bank charge actions, as a judge at Leeds mercantile court found himself scheduled to hear 250 cases in a single day.

The banks settled dozens of the cases out of court at the eleventh hour, agreeing to refund thousands of pounds in fees to their customers. But the judge, Simon Grenfell, heard 75 cases, finding in the favour of the complainants in the majority of them.

Judge Grenfell said that the courts had become inundated with bank-charge cases, and threatened to use some of yesterday's cases as legal precedents. That would be significant because, while hundreds of cases have already been heard in mercantile and county courts around the country, none have so far set any kind of precedent.

Last-minute settlements have become a regular occurrence, with the banks regularly waiting to hours or even minutes before a hearing before agreeing to settle. Earlier this month, a senior commercial judge hit out at the banks for their delaying tactics, saying they were deliberately asking customers for information that they had already supplied, so as to stall the legal process.

There are still hundreds more cases scheduled to take place at courts across the country over the next few months, while the Financial Ombudsman Service has also seen a large leap in the number of claims relating to allegedly illegal bank charges.

The run on the banks began at the start of this year, when the Office of Fair Trading said it was going to investigate the legality of bank charges in the UK. Thousands of bank customers, spurred on by consumer groups and claims farmers, complained to their banks without waiting for the OFT's conclusions, demanding their banks charges from the past few years were refunded.

The banks have already paid out millions in claims, but have also rejected a number of cases, leaving customers to either pursue them in the courts, or take them to the Financial Ombudsman Service. The banks have so far settled every case that has come to the Ombudsman, as it is keen to avoid any ruling being made which will set a precedent.

But last month, a county court judge in Birmingham ruled in favour of Lloyds TSB, dismissing a claim for £2,545 from a customer, Kevin Berwick. He concluded that the bank's charges were legitimate for servicing an overdrawn account.