Partner Article

Banks lose overdraft charges case

The Office of Fair Trading has won its High Court claim that charges levied by banks for unauthorised overdrafts are subject to “unfair contract” rules. The decision paves the way for another hearing in which the court will decide whether the charges are unfair and, if so, what they should be.

It could result in banks and building societies having to pay back billions to customers.

The test case was brought jointly by the OFT together with seven high street banks and the Nationwide building society, following moves by customers to reclaim millions of pounds in charges through the courts.

The OFT argued the charges for unauthorised or excessive overdrafts amount to penalties, which is against consumer regulations. But the banks countered they are not penalties but fees for a service, namely setting up an overdraft, and as such are not unfair.

The charges are incurred when customers get overdrawn without an agreement or breach their authorised limit. Banks are thought to have made between £2bn and £3.5bn a year in such overdraft fees for the last six years.

They can be as much as £35 for a bounced cheque, although campaigners claim the cost to the banks could be as little as £2.50.

This was posted in Bdaily's Members' News section by Ruth Mitchell .