Leading article: A victory for common sense – and for customers

Share
Related Topics

A crucial battle has been won in the campaign for fair bank charges, and now it is surely only a matter of time before final victory in the war itself arrives. A High Court judge, Mr Justice Andrew Smith, ruled yesterday that the Office of Fair Trading can apply the 1999 Unfair Terms in Consumer Contracts Regulations to decide if unauthorised overdraft charges levied by the banks are fair or not.

The judge was careful to note that his judgment does not necessarily mean the charges levied by banks are indeed unfair. And he rejected the OFT's argument that the banks' terms and conditions regarding overdraft charges were not written in sufficiently plain English. But his decision to give the OFT jurisdiction is the key. The OFT has already strongly hinted that it believes the charges banks levy for unauthorised overdraft borrowing are unjustified. Indeed, this was the reason it brought this test case against seven major British banks last July.

The arguments have been complex but the principle at stake here is simple enough. It comes down to the difference between a fee for a service and a penalty charge. The 1999 law allows the banks to charge customers only the administrative cost of dealing with unauthorised overdrafts. Yet the sums the banks have been levying on customers have been well in excess of this administrative cost. Though it costs the banks only £2 to process a bounced cheque, they have been charging up to £40 a time. There will now need to be a further court hearing in which a judge will be asked to decide what a fair charge would be.

Banks have already refunded £784m to about 378,000 customers in the past two years, while admitting no legal guilt. Thanks to this verdict, many thousands more look likely to be refunded for charges levied over the past seven years. According to some estimates, bank customers could be in line to receive as much as £10bn in refunds. At the very least, the banks look likely to be forced to bring their charges down dramatically in future. This is what happened when the OFT ruled that the penalty charges levied by credit card issuers for the late payment of credit card bills were excessive.

Of course, the banks might attempt to appeal against yesterday's ruling, stringing out the legal process. These charges have been a nice little earner for the lenders, raking in £3.5bn a year. They may well decide that it makes financial sense to continue collecting the charges and delaying the day of reckoning. For the sake of their reputations, the banks should pay up now instead.

And then there is the backlash for the ordinary customer. In the past, the banks have hinted that they might abandon their long-standing policy of so-called "free banking" if they are not allowed to levy such charges. The spectre of regular charges for current account holders has been invoked. Yet the banks should think twice before repeating such threats in the present climate. Financial institutions are hardly flavour of the month at the moment, either with regulators or with their customers. This week has seen the unveiling of plans to saddle the taxpayer with responsibility for billions in questionable loans made by the large banks, the same institutions on the wrong side of yesterday's judgment. And throughout the recent turbulence in financial markets, the major British banks have been paying out record dividends to their shareholders and bonuses to their executives.

Humility, rather than belligerence, would be an appropriate response to this ruling. Britain's banks would be well advised to swallow this defeat with good grace and instead focus their energies on giving their customers a fair and honest service.

React Now

Latest stories from i100
iJobs Job Widget
iJobs General

Recruitment Genius: Key Sales Account Manager - OTE £35,000

£25000 - £35000 per annum: Recruitment Genius: Have you got a proven track rec...

Recruitment Genius: Sales Executive - OTE £40,000

£15000 - £18000 per annum: Recruitment Genius: This is a great opportunity for...

Recruitment Genius: Senior Designer / Design Director

£38000 - £48000 per annum: Recruitment Genius: This B2B content marketing agen...

Austen Lloyd: Law Costs HOD - Southampton

£50000 - £60000 per annum + Excellent Salary: Austen Lloyd: An outstanding new...

Day In a Page

Read Next
David Cameron visiting a primary school last year  

The only choice in schools is between the one you want and the ones you don’t

Jane Merrick
Zoë Ball says having her two children was the best thing ever to happen to her  

Start a family – you’ll never have to go out again

John Mullin
Syrian conflict is the world's first 'climate change war', say scientists, but it won't be the last one

Climate change key in Syrian conflict

And it will trigger more war in future
How I outwitted the Gestapo

How I outwitted the Gestapo

My life as a Jew in wartime Berlin
The nation's favourite animal revealed

The nation's favourite animal revealed

Women like cuddly creatures whilst men like creepy-crawlies
Is this the way to get young people to vote?

Getting young people to vote

From #VOTESELFISH to Bite the Ballot
Poldark star Heida Reed: 'I don't think a single bodice gets ripped'

Poldark star Heida Reed

'I don't think a single bodice gets ripped'
The difference between America and Israel? There isn’t one

The difference between America and Israel? There isn’t one

Netanyahu knows he can get away with anything in America, says Robert Fisk
Families clubbing together to build their own affordable accommodation

Do It Yourself approach to securing a new house

Community land trusts marking a new trend for taking the initiative away from developers
Head of WWF UK: We didn’t send Cameron to the Arctic to see green ideas freeze

David Nussbaum: We didn’t send Cameron to the Arctic to see green ideas freeze

The head of WWF UK remains sanguine despite the Government’s failure to live up to its pledges on the environment
Author Kazuo Ishiguro on being inspired by shoot-outs and samurai

Author Kazuo Ishiguro on being inspired by shoot-outs and samurai

Set in a mythologised 5th-century Britain, ‘The Buried Giant’ is a strange beast
With money, corruption and drugs, this monk fears Buddhism in Thailand is a ‘poisoned fruit’

Money, corruption and drugs

The monk who fears Buddhism in Thailand is a ‘poisoned fruit’
America's first slavery museum established at Django Unchained plantation - 150 years after slavery outlawed

150 years after it was outlawed...

... America's first slavery museum is established in Louisiana
Kelly Clarkson: How I snubbed Simon Cowell and become a Grammy-winning superstar

Kelly Clarkson: How I snubbed Simon Cowell and become a Grammy-winning superstar

The first 'American Idol' winner on how she manages to remain her own woman – Jane Austen fascination and all
Tony Oursler on exploring our uneasy relationship with technology with his new show

You won't believe your eyes

Tony Oursler's new show explores our uneasy relationship with technology. He's one of a growing number of artists with that preoccupation
Ian Herbert: Peter Moores must go. He should never have been brought back to fail again

Moores must go. He should never have been brought back to fail again

The England coach leaves players to find solutions - which makes you wonder where he adds value, says Ian Herbert
War with Isis: Fears that the looming battle for Mosul will unleash 'a million refugees'

The battle for Mosul will unleash 'a million refugees'

Aid agencies prepare for vast exodus following planned Iraqi offensive against the Isis-held city, reports Patrick Cockburn