The Latest on the Bank Charges OFT Test Case

By April 16, 2009Articles

While many people have been drowning in debt over the last few years, the banks have been adding to this by hitting (often vulnerable) customers with huge charges for going overdrawn or for unpaid direct debits, etc. Charges often reach £30-£40, with extra charges added on for every day a customer remains overdrawn, and in January 2006 it was discovered that lenders were in fact breaking the law by imposing these huge charges.


As a result, many people claimed back their bank charges with the help of template letters on money saving websites, and in just two years the banks had repaid an incredible £1 billion pounds to customers, with some individuals receiving £30,000.

In July 2007, the OFT (Office of Fair Trading) disclosed that it was taking the banks to court following the bank charges fiasco, and, as a result, all claims were put on hold by the Financial Services Authority until the court case was concluded – however, those customers who could prove they were suffering from financial hardship as a result of bank charges were exempt from this move.

In April 2008, it was concluded that bank charges should be subject to fairness rules, but the banks appealed the decision. In October of the same year, it was concluded that charges were indeed unfair, which the banks once again appealed.

Finally, on the 26th February 2009, the banks’ attempts to overturn the OFT’s decision was dismissed – the high court ruled in the OFT’s favour, which meant that bank charges could finally be tested for fairness. Crucially, this could mean the banks will be liable to pay back at least £15 billion to affected customers.

However, the British Bankers’ Association has stated that the banks may appeal to the House of Lords over the decision, meaning the OFT investigation may be delayed by a further 6-12 months; if the banks decide against appealing, customers will still have to wait until the OFT investigation has been concluded (thought to be later this year).

The OFT stated how the courts have found that bank charge terms are ‘not part of the core or essential bargain between a consumer and their bank’ and thus ‘consumers have protection under the ‘unfair terms in consumer contract regulations……we are now analysing the implications of the judgement for our ongoing investigation’. It is now up to the OFT and the banks to decide what constitutes ‘fair’ bank charges and to implement these.

If you have accrued any bank charges, you can claim back all such charges going back 6 years, and this may add up to a tidy sum. Although all claims have been put on hold until the OFT case is concluded, you can still send in your claim – if the banks decide against appealing or eventually lose the case, there will be a huge backlog of claims, so it is wise to get your application in early.

Guides and template letters are available on money saving websites. It has been said that, should the banks be defeated, charges will automatically be refunded to customers – apparently, RBS has already got plans in place to do this. However, this is highly unlikely and customers will probably have to apply for their refunds.

Banks prefer customers to use the financial ombudsman service to settle any charges disputes, but the ombudsman takes a long time to resolve matters and does not make awards of interest. Going through county court is a much quicker process, interest is awarded, and the court has the authority to demand that improper credit file histories are removed.

Regarding the hardship issue, Marc Gander, co-founder and owner of The Consumer Action Group, says;

None of the banks have published any set of rules which indicates to people what is hardship and what isn’t. The Consumer Action Group has had hundreds of people on benefits and in great difficulty applying to the banks for the refund of their bank charges on the basis of hardship and it is extremely rare that the banks have taken any notice and have refunded any money.

In some circumstances they supply a form which has to be completed with details of incomings, outgoings, etc and in most cases the decision is taken that the claimant is not in hardship….in the few cases where the bank has agreed that there is hardship, the bank has not offered a full refund, it has offered a partial refund – typically about 50% – in full and final settlement

This is a vicious and callous attempt to leverage hardship in order to deprive
people of their full final settlement”.

In the meantime, despite the waiver on bank charges claims, the banks continue to charge customers and use enforcement to recover debt: people are still being threatened with court action for the recovery of bank charges and some are even faced with the threat of repossession.

This is grossly unjust: for the past two years, people have been prevented from asserting their rights in the County Court, yet for the banks it is business as usual, despite the OFT stating that the charges are indeed unfair.

We would like to hear your thoughts whether these overdrawn bank charges are excessive.