The legal battle against extortionate bank charges is now officially over. Last month the Supreme Court ruled that the Office of Fair Trading (OFT) could not use consumer contract regulations to impose its views on the fairness of bank overdraft charges. And yesterday the OFT confirmed it would mount no further challenges to such fees through the courts.
But though an important battle has been lost, the war is far from over. And the Government, for a change, is leading the charge. The Consumer Affairs minister, Kevin Brennan, warned this week that unless banks voluntarily get rid of these punitive charges, the Government will draft legislation requiring them to do so.
The law in this area, as we have seen, is complex, but the principle is very clear. As the OFT argues, it is unfair for the banks to charge customers more than it costs them to process an unauthorised withdrawal. It is not the existence of fees that is the problem, but their extortionate nature (up to £35 for each transgression).
The argument that this is a reasonable, even helpful, penalty for imprudence is nonsense. Those who are overdrawn already pay interest on their borrowings. Why should they be punished twice? Moreover, the banks do not levy these charges with the best interests of their overdrawn customers in mind, but because they generate £2.6bn in revenues a year. The motivation for these charges is not prudence, but profit.
The idea that customers, if they don't like the terms and conditions of their account, can simply change their bank is also weak. In the present concentrated high street banking market, customers would find themselves fleeing from the frying pan into the fire. The solution, in the longer term, is more genuine competition in retail banking, where a healthy number of lenders would have a real incentive to attract customers by treating them fairly.
But for now a government nudge is required to make this market work better. Some banks have voluntarily lowered their fees of late. The rest of the sector now needs to follow. If they resist, the Government should not hesitate to pass legislation. Penalty overdraft fees might be legal, but that does not make them justified.