The bank charge verdict – what does it mean?

Over the past couple of years many banking customers have been flooding banks with claims for bank charges that had been applied to their accounts over the past six years.

For many years banks have been charging fees of close to £40 in some cases when a customer goes overdrawn, for bounced cheques, and for returned direct debits.

However, a couple of years ago the Office of Fair Trading claimed that the fees that were being charged were unlawful and unfair, stating that the costs incurred by banks came to just a few pounds but that the banks were often charging close to ten times this amount to customers.

Since this time many customers have been contacting their banks in order to reclaim their bank charges. Some were successful and received a full or partial refund from the bank.

Martin Lewis from MoneySavingExpert.com stated: “The banks have been taking peoples’ money unlawfully. Let’s get rid of that hold and give people their money back.”

Other took their claims to the courts, where in the majority of cases the judges ruled in their favour – although there were some cases that were won by the banks.

However, in the summer of last year all pending and future claims were put on hold, as it was decided that a test case was needed in order to determine whether the Office of Fair Trading was right, or whether the banks were right when they claimed that these charges were justified.

The High Court test case into bank charges was set for January of this year, and lasted just a matter of weeks. However, the presiding judge, Justice Andrew Smith, said that he needed time to consider all of the information following the case, and as such was unable to deliver his verdict for a while.

However, last week, three months after the test case, the judge announced that he had ruled in favour of the Office of Fair Trading in this first stage of the case.

The judge’s decision, however, could cause some confusion. Officials are reminding consumers that this is only the first stage of the proceedings, and merely gives the Office of Fair Trading the right to assess banks’ terms and conditions for fairness, which includes banks charges.

It is thought that the process will begin right away, and the OFT will deliver its assessment in around July. However, the matter will then have to go back to the High Court in order for a final conclusion to be reached.

In the meantime the banks have been given time to appeal against this initial verdict, and most assume that they will appeal given that they could otherwise be forced to repay billions of pounds to consumers.

Banks have until May 22ns to appeal against the ruling, until which time all pending cases are expected to be kept on hold. One legal official stated: “It is fair to assume an appeal will be lodged.”

The British Bankers Association added: “As previously agreed with the Financial Ombudsman Service and the FSA, customer complaints relating to unauthorised overdraft charges will currently remain on hold. The banks will continue to ask County and Sheriff Courts to keep cases relating to unauthorised overdraft charges on hold until the test case process is concluded.”

Campaigners were delighted that the Oft had won the first stage of this fight, and are adamant that banks should admit defeat

Another campaigner from consumer group Which? said: “The banks should do the right thing now: concede defeat, agree with the OFT what constitutes a fair unauthorised overdraft fee, and refund their customers as soon as possible. The FSA must now drop its waiver so that the thousands of cases pending in the county courts and Financial Ombudsman Service can be processed. This whole saga has severely damaged the reputation of the UK’s high street banks. If they appeal, drag their heels in refunding their customers or try to introduce back-door charges to recoup their losses, their customers will see this as adding insult to injury.”

Whilst this ruling is certainly a victory for the Office of Fair Trading and the many campaigners that have been fighting against bank charges, it is important to bear in mind that the final conclusion will not be known until after the next hearing.

If the banks do lose the next stage of the proceedings they could be liable for repayment of billions of pounds in past banks charges, and are likely to be hit with floods of claims.

However, whilst this will mean that consumers can reclaim their charged, many are questioning whether the consumer will ever really win. This is because many officials believe that banks will bring in standard monthly account charges if they lost the case in order to recoup some of their losses.