Yesterday, the UK’s financial institutions were celebrating a Supreme Court ruling that will allow them to keep charging customers who go over their arranged overdraft limits.
The size of the fees vary from £5 for every day the customer is outwith their overdraft limit to a £35 flat fee and have proved to be a lucrative penalty for the institutions. Campaigners estimate that the actual cost of administering an exceeded overdraft is as little as £2.50.
Around a third of retail revenues generated by banks come from overdraft charges, which the Office of Fair Trading found were difficult to understand, lack transparency
and not subject to effective consumer control.
Following a concerted campaign by consumer groups to challenge the fees, banks have paid out more than £559m to customers who applied for their charges to be refunded.
In April, as the banks started to fight back against the deluge of litigation, claims made after July 2007 were put on ice after the OFT agreed to go ahead with a test case to seek clarity on the issue.
Now it has been found that the charges are not “unfair contract” and subject to regulation by the OFT, making it far more difficult to move forward with the frozen claims.
Peter Vicary-Smith, chief executive of the consumer group Which? – leaders of the campaign that encouraged people to reclaim the charges – said: “This is a bitter blow for the millions of people who have been patiently waiting to get their bank charges back.
“Not only does it give banks licence to charge what they like for unauthorised overdrafts, but it could have ramifications for other areas of personal finance. The banks now have no excuse for introducing other fee charges.”
The Supreme Court found in favour of the bank’s argument that the charges were an essential element of free banking, where those who do not follow the rules subsidise the favourable conditions for those who do.
A statement from the British Bankers’ Association said: “The Supreme Court has today confirmed that the banks’ unarranged overdraft charges are an important part of current account services which the banks provide to their customers and that the amount of those charges is not assessable for fairness.
“We are pleased that this decision now brings clarity for all parties.”
While the judgment may not directly resolve the myriad of cases on hold, experts said that it will be difficult to find a way forward after the “unfair contract” ruling was overturned. However, other avenues may exist.
Martin Lewis, of Moneysavingexpert.com, said: “This may be a setback for reclaiming but it is not the end. The likelihood is the money is not coming back for anyone who has got claims on hold. There is still hope here, but we have got to do a lot of reading and a lot of legal work.”
“It wasn’t a loss, the OFT fought on the wrong clause. The initial shock reaction by the crowd in the court, thinking that the banks had won, obscured what was perhaps the most important part of the judge’s final statement, that the OFT may be able to look at fairness by another route.”
The OFT will now consider the detail of this judgment before it makes a decision on whether or not to continue its investigation into unarranged overdraft charging terms. A further announcement is expected in December.
Sarah McCarthy Fry, Exchequer Secretary to the Treasury, said yesterday: “Consumers, who have been waiting a number of years, will be extremely disappointed with this outcome. It’s clear that in the past, banks were not thinking enough about their customers. That needs to change for the future. While the decision on past charges has not gone in favour of consumers, we are determined to ensure the system is made fairer in the future.”
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