David Prosser: Proof that the law is on customers' side

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This is the moment Britain's banks have been dreading. For several years now, almost every current account provider in the land has been quietly settling claims for compensation made by customers furious about charges that bore no relation to the cost incurred when someone exceeded their overdraft limit or bounced a cheque.

In public, the banks have presented a united front, arguing they were doing nothing wrong in charging £25 or more each time customers bust their limits, even by just a few pence. Their arguments were undermined by their own behaviour – every time a customer threatened to take them to court over such charges, compensation was coughed up swiftly. Anything to avoid a court case that would set a precedent by which all compensation claims could be judged.

Unfortunately for bank bosses, however, the day of reckoning has arrived. The High Court could not have been clearer yesterday: bank charges most definitely are covered by laws governing unfair consumer contracts and, as such, the banks are acting illegally.

By all the laws of natural justice, yesterday's ruling should be an end to this sorry controversy. Not only should those customers who have already complained about charges get their refunds immediately, but banks should be forced to scour their records for all those who haven't claimed and reimburse them.

If only life were that simple. Leading banks are now considering an appeal and the Office of Fair Trading (OFT) has, in any case, still to work out what a fair charge for unauthorised borrowing would be. Bank charge victims won't be able to work out what they are owed until this figure has been set.

The real pity of this is that we never needed a court case in the first place. The OFT has long known exactly what it costs to process unauthorised borrowing cases. Last summer, it told the credit card industry that any penalty fee above £12 would almost certainly be considered illegal.

The watchdog was poised to make an identical ruling in the banking sector. But at the last minute it lost its nerve, following a PR campaign from the banks.

The Financial Services Authority also granted the banks an unprecedented right to postpone consideration of all complaints about borrowing charges, pending the High Court's decision. Now we have that decision, the FSA ought to lift that waiver.

In the meantime, however, the important message to bank customers from yesterday's ruling is that the law is on their side. Stake your claim to compensation as soon as possible – it may take some time, but you will eventually get the money you're owed.

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