Banks launch legal defence of 'unfair' customer charges

Banks have spent millions of pounds hiring the City's leading QCs and barristers to fight the Ofice of Fair Trading's legal bid to limit overdraft charges which began yesterday.

Fifty lawyers representing financial institutions crowded the courtroom at the start of the long-awaited hearing. There was no room for the public to attend.

Drawn from the City's top "Magic Circle" firms, the legal minds assembled by the high street banks are already estimated to have clocked up fees of £1m each preparing the test case.

Their job is to maintain the £2.7bn-a-year revenue from charges for bounced cheques and other unauthorised borrowing, which the OFT argues are illegally high under a consumer fairness law.

Each of the banks – Abbey, Barclays, Clydesdale, HBOS, HSBC, Lloyds TSB and RBSG, and the Nationwide Building Society – has hired a QC at the head of a team of junior counsel, solicitors and legal executives. Top commercial "silks" charge between £500 and £1,000 an hour, billing clients for "reading time" as well as advocacy.

The banks' lawyers are among the sharpest minds in the business and include Geoffrey Voz QC, beginning one of his first cases since standing down as chairman of the Bar Council last month. Acting for Royal Bank of Scotland Group is Laurence Rabinowitz QC, one of 2007's Hot 100 named by The Lawyer magazine.

Abbey has hired Ali Malek QC, chairman of the Commercial Bar Association, while Barclays has retained the services of the Old Etonian litigation expert Iain Milligan QC. Richard Salter QC – described as "incredibly bright" by Chambers and Partner guide – is representing Clydesbank and Richard Snowden QC HSBC. The other QCs are Bankim Thanki and Robin Dicker.

Brian Doctor QC heads the OFT's legal team, which is outnumbered five to one in the International Dispute Resolution Centre in central London, where the case is being held. Members of the public watched a video-link in a side room.

Opening the case, Mr Rabinowitz said there was a need for clarity about overdraft charges because the courts and the Financial Ombudsman Service had been engulfed by a "torrent" of claims for refunds from customers last year. The claims were partly as a result of "ill-judged comments" made by the OFT which had stated that the same principles that should limit credit card fees applied to current accounts, he told Mr Justice Andrew Smith.

The comment was "unfortunate" because it was made before the OFT had even begun its ongoing investigation into current account overdraft charges. Nonetheless, said Mr Rabinowitz, it became obvious that, "a hornet's nest having been stirred", there was a need for a definitive legal ruling. He insisted that the charges were part of the basic cost of having a current account rather than – as the OFT claims – a punitive fee under the 1999 Unfair Terms in Consumer Contract Regulations, which would mean that they could not exceed costs.

He also denied accusations that the terms and conditions for bank customers were not stated in "plain intelligible" language, another plank of the OFT's case.

The case is expected to last two weeks, with judgment due by the end of April. If the judge rules the fees are covered by the legislation, the OFT will look to bring a second case proving they are illegally high.

Under an agreement between the parties, all bank charge claims except those brought by customers in "hardship" have been postponed pending the outcome of the case.