April 24, 2008 / 9:44 AM / 12 years ago

Court clears UK watchdog to probe bank charges

LONDON (Reuters) - Britain’s consumer affairs watchdog won a legal victory on Thursday in the first stage of a lengthy process that potentially paves the way for bank account holders to reclaim billions of pounds in fees.

The High Court ruling allows the Office of Fair Trading to press ahead with its investigation to determine whether banks can legally charge customers who slip into the red without prior agreement. But Mr Justice Andrew Smith stopped short of saying whether charges for unauthorised overdrafts were unfair.

The OFT launched an investigation into the fees in March 2007, after a consumer backlash that saw thousands of Britons claiming back fees going back up to six years.

In the first half of 2007, Britain’s biggest banks refunded more than 400 million pounds ($794 million).

But several banks disputed whether the charges, typically between 24 pounds and 39 pounds per unauthorised overdraft, came under the OFT’s remit, triggering the legal dispute.

Mr Justice Andrew Smith backed the OFT, which argues that the 1999 Unfair Terms in Consumer Contracts Regulations can be applied to overdraft charges imposed by the bank and, therefore, the banks can be sued.

But he added this did not necessarily mean the terms imposed by banks were unfair.

“I reject the banks’ contention that the Relevant Terms (the bank terms under challenge by the OFT) are exempt from assessment as to fairness under the 1999 Regulations,” he said.

But he continued: “This does not mean that the Relevant Terms are necessarily to be regarded as unfair or that they are not binding on consumers under the Regulations.”

“Those are not questions for me to decide in this judgment.”


Britain’s biggest banks say their charges are fair and clear, while analysts and campaigners have estimated they take more than 1 billion pounds in such fees a year.

The British Bankers’ Association said the eight lenders involved in the dispute were considering the implications of the “complex” ruling. They can appeal the decision.

The OFT welcomed the move as an “important early milestone,” but said further hearings may be needed to determine outstanding issues. A hearing on May 22 is expected to set the timetable for the next steps.

“We are continuing our investigation into the fairness of these terms and will consider our position after reviewing the detail of this judgment,” the consumer body said.

Until the test case is resolved, customer complaints and court cases relating to the overdraft charges are on hold.

Lawyers say the test case could take years, as Thursday’s ruling alone can go to the Appeal Court and the House of Lords, Britain’s highest court of appeal, before the full case goes to court — and that could take two years or more.

Thursday’s ruling follows a January hearing at which lawyers for Royal Bank of Scotland (RBS.L), Abbey, Barclays (BARC.L), Lloyds (LLOY.L), HSBC (HSBA.L), HBOS HBOS.L, Clydesdale Bank and building society Nationwide argued the 1999 regulations were not applicable to charges agreed between banks and customers.

The eight lenders hold about 90 percent of personal current accounts in Britain.

Reporting by Mark Potter and Clara Ferreira-Marques; Editing by David Hulmes

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