Seven of the biggest UK banks lost a landmark test case today at the High Court regarding their unauthorised overdraft charges.
Mr Justice Andrew Smith agreed with the OFT that charges were covered under the Unfair Terms in Consumer Contracts Regulation 1999 and that their bank fees could be challenged by the Office of Fair Trading (OFT), marking the start many consumers seeking charges refunded.
The banks involved – Barclays, HSBC, Lloyds TSB, the Royal Bank of Scotland, HBOS, Abbey, Clydesdale and Nationwide building society – could now be forced to reduce fees and repay those they have charged over the past six years.
Banks receive almost ¬¨¬£10m a day (¬¨¬£3.5bn a year) in unauthorised overdraft fees, and charge up to ¬¨¬£39 for a ‚Äö√Ñ√≤bounced’ cheque, standing order or direct debit, which critics have complained does not reflect the true cost banks incur – somewhere in the region of ¬¨¬£2.
A second hearing is now expected where the court will decide whether the charges are unfair and, if so, what a fair fee should be.
Leading financial journalist Martin Lewis said that the ruling was “a massive vindication for bank charges campaigners”, and that up to ¬¨¬£9bn could now be reclaimed by bank customers.
Whilst in the short-term this may provide a payout to customers who were unfairly charged, the result could see banks introducing monthly charges to recoup their lost income.
Doug Taylor, personal finance campaigns manager at 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.
“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.”
Chiltern’s Nathan Gladwell says: “Taking expensive charges from customers, who had exceeded their credit limits and were already in trouble, only perpetuates the problem of debt.
“These people needed help and guidance from banks, not draconian punishment, and these excessive fees meant they would have less money each month to cover their living costs – putting further strain on already overstretched budgets.
“We’ve seen many people struggling with their finances because of the fees and charges levied on their accounts – fortunately for the ones who contacted us we’ve usually been able to help them and re-schedule their debts to more affordable levels.
“This is a massive victory for customers who have been unfairly charged, however we have to hope that the banks don’t negate this triumph now by withdrawing free banking for customers and impose monthly fees.