David Prosser: The customers are in the right

Share
Related Topics

The banks may have won this battle but they cannot win the war. The Supreme Court ruling is a blow to the campaign to secure refunds for those who have paid excessive unauthorised borrowing charges, but it was a technical adjudication on the powers of the Office of Fair Trading, not a judgment on whether the banks' fees were fair or legal.

On this more fundamental question, there is no argument. One of the basic tenets of law is that when one party breaches a contract, the other party is entitled to reclaim their costs but no more. In the banking context, customers who breach their overdraft limit should be charged a fee reflecting the costs incurred by their bank as a result. But the bank isn't entitled to make a profit on this fee.

That's what happened for many years. Banks routinely charged £35 each time customers borrowed too much or bounced a cheque, even though the cost of dealing with each of these cases was a fraction of that figure.

But don't take my word for it that the banks are in the wrong. They have admitted as much themselves.

Why did Britain's banks pay out £560m in compensation to thousands of customers who complained about these charges before all subsequent cases were put on hold during the OFT test case? Because they were desperate to settle every single case before a customer took them to court to establish a legal precedent that the level of fees being charged was illegal.

Why has every single bank now reduced unauthorised borrowing charges to a level that reflects much more accurately the true costs of dealing with these breaches? Because the banking industry knew it had been caught out in trying to levy fees that were illegally high.

And why did the banks not complain when the OFT ruled their credit card divisions could charge fees of no more than £12 if borrowers exceeded their credit limits on these accounts? Because they knew they had no legal justification for arguing the case.

Many people worry about what will happen if banks are forced to spend billions on compensating those they have overcharged and give up the £2.6bn annual revenue that these fees produce. It's true that the free-banking model we have in Britain is likely to be eroded (though in truth this is already happening), an unhappy result for all those bank customers who have always stayed within the limits of their accounts.

That, however, is a different issue. While the model may have worked in the favour of some customers, we cannot allow the banks to get away with years of having routinely charged millions of people illegally high fees. Nor will we. As soon as a court gets to rule on the legality of these fees – rather than the technicalities of the OFT's remit – yesterday's setback will be reversed.

React Now

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
iJobs Job Widget
iJobs General

Senior IP Opportunity at Major Firm

vary Attractive Salary: Austen Lloyd: MANCHESTER - AN OPENING AT A VERY HIGH Q...

Nursery Manager

£100 - £110 per day: Randstad Education Ilford: Nursery Manager Long term Ran...

Sales Consultant – Permanent – West Sussex – £24-£25k plus commission and other benefits

£24000 - £25000 Per Annum plus company car and commission: Clearwater People S...

SEN Teaching Assistant

£45 - £65 per day: Randstad Education Bristol: Supply SEN Support Jobs in Bris...

Day In a Page

Read Next
The Liberal Democrats leader says efforts need to be focused on cracking down on the criminal gangs  

Nick Clegg: We should to go to war on drugs, not on addicts

Nick Clegg
East German border guards stand on a section of the Berlin wall in front of the Brandenburg gate on November 11, 1989  

Twenty-five years after the Berlin Wall fell, Hungary’s PM thinks it is Western capitalism that is in its death throes

Peter Popham
The drugs revolution starts now as MPs agree its high time for change

The drugs revolution starts now as MPs agree its high time for change

Commons debate highlights growing cross-party consensus on softening UK drugs legislation, unchanged for 43 years
The camera is turned on tabloid editors in Richard Peppiatt's 'One Rogue Reporter'

Gotcha! The camera is turned on tabloid editors

Hugh Grant says Richard Peppiatt's 'One Rogue Reporter' documentary will highlight issues raised by Leveson
Fall of the Berlin Wall: It was thanks to Mikhail Gorbachev that this symbol of division fell

Fall of the Berlin Wall

It was thanks to Gorbachev that this symbol of division fell
Halloween 2014: What makes Ouija boards, demon dolls, and evil clowns so frightening?

What makes ouija boards and demon dolls scary?

Ouija boards, demon dolls, evil children and clowns are all classic tropes of horror, and this year’s Halloween releases feature them all. What makes them so frightening, decade after decade?
A safari in modern Britain: Rose Rouse reveals how her four-year tour of Harlesden taught her as much about the UK as it did about NW10

Rose Rouse's safari in modern Britain

Rouse decided to walk and talk with as many different people as possible in her neighbourhood of Harlesden and her experiences have been published in a new book
Welcome to my world of no smell and odd tastes: How a bike accident left one woman living with unwanted food mash-ups

'My world of no smell and odd tastes'

A head injury from a bicycle accident had the surprising effect of robbing Nell Frizzell of two of her senses

Matt Parker is proud of his square roots

The "stand-up mathematician" is using comedy nights to preach maths to big audiences
Frank Warren: Call me an old git, but I just can't see that there's a place for women’s boxing

Frank Warren column

Call me an old git, but I just can't see that there's a place for women’s boxing
Adrian Heath interview: Former Everton striker prepares his Orlando City side for the MLS - and having Kaka in the dressing room

Adrian Heath's American dream...

Former Everton striker prepares his Orlando City side for the MLS - and having Kaka in the dressing room
Simon Hart: Manchester City will rise again but they need to change their attitude

Manchester City will rise again but they need to change their attitude

Manuel Pellegrini’s side are too good to fail and derby allows them to start again, says Simon Hart
Isis in Syria: A general reveals the lack of communication with the US - and his country's awkward relationship with their allies-by-default

A Syrian general speaks

A senior officer of Bashar al-Assad’s regime talks to Robert Fisk about his army’s brutal struggle with Isis, in a dirty war whose challenges include widespread atrocities
‘A bit of a shock...’ Cambridge economist with Glasgow roots becomes Zambia’s acting President

‘A bit of a shock...’ Economist with Glasgow roots becomes Zambia’s acting President

Guy Scott's predecessor, Michael Sata, died in a London hospital this week after a lengthy illness
Fall of the Berlin Wall: History catches up with Erich Honecker - the East German leader who praised the Iron Curtain and claimed it prevented a Third World War

Fall of the Berlin Wall

History catches up with Erich Honecker - the East German leader who praised the Iron Curtain and claimed it prevented a Third World War
How to turn your mobile phone into easy money

Turn your mobile phone into easy money

There are 90 million unused mobiles in the UK, which would be worth £7bn if we cashed them in, says David Crookes
Independent writers remember their Saturday jobs:

Independent writers remember their Saturday jobs

"I have never regarded anything I have done in "the media" as a proper job"