The Office of Fair Trading yesterday warned Britain's banks it intended to take them to task over unauthorised overdraft charges whatever the outcome of a High Court test case on the fees that is scheduled to begin in January.
The OFT published its formal submission to the High Court last night, rebutting a submission from the banking industry that unauthorised borrowing charges were fees paid for a service provided to customers. The regulator said it believed the fees were penalty charges and accused the banking industry of misleading customers.
Millions of bank customers have this year filed claims for refunds of charges paid for breaching overdraft limits or bouncing cheques, which can be as high as £35. The industry is thought to have paid out close to £600m in compensation to more than 300,000 customers, but earlier this year the OFT said it would bring a test case against eight current account providers to establish the legalities of the fees.
The Financial Services Authority, the banking regulator, subsequently announced it would allow banks to suspend reviews of customers' complaints until the case, due to begin on 14 January, had been heard. In theory, if the High Court rules in favour of the banks, no more compensation would be payable. But yesterday, Cavendish Elithorn, a senior director at the OFT, said the regulator had no intention of letting the industry off the hook.
"Banks should be clear to consumers about their costs so they can be predicted and compared – relying on small print is not a sustainable business model," he said. "If we lose the case, there may still be an issue that should be addressed – if the law doesn't apply, we need to think about what alternatives there may be."
Mr Elithorn said these alternatives included the possibility of referring the banks to the Competition Commission, or making recommendations to the Government for a change in the law. The OFT is also conducting a wider review of bank charges, which it will publish after the High Court case, and which could include other remedies designed to penalise the sector.
The OFT's hardline stance on unauthorised overdraft fees is causing growing irritation among the banks, which are angry that the regulator has chosen to continue making public statements on the charges. "We thought we were letting the courts decide these issues, but the OFT seems to want to play this out in the media," a spokeswoman for the British Bankers' Association said.
The banks' submissions to the court have not been published, the BBA pointed out.