OFT launches test case on unauthorised overdraft charges

In a surprise announcement last night, the Office of Fair Trading has announced it has agreed to a test case with seven of the major banks to decide the principles of reclaiming bank charges in the High Court (this has no impact credit card reclaiming). At the same time the regulator the FSA has issued a waiver to the banks and said they no longer need to deal with complaints until a High Court ruling has been made.

The Office of Fair Trading (OFT) will start High Court proceedings today (Fri 17 July 07) to clarify whether bank charges on unauthorised overdrafts are fair. The move follows an OFT investigation launched in March after a consumer backlash against retail bank charges for unauthorised overdrafts.

"The banks do not accept that the unfairness rules of the Unfair Terms in Consumer Contract Regulations apply. The OFT believes that they do and is seeking to establish this legal principle clearly in the court." Six major banks, including Barclays, HSBC and Royal Bank of Scotland, are participating in the test case as they say they want to clarify the law as well. "The banks have always been firmly of the view that the fees they charge customers are fair and clear," said Angela Knight, chief executive of the British Bankers' Association (BBA), the industry lobby group.

"The court case will clarify these points and provide certainty for customers and banks alike."

The Financial Services Authority has agreed to suspend all refunds paid by banks until the court decision is made, although the BBA said claims for refunds can still be made and would be paid out if the court says they should be refunded.

For full details download the Financial Ombudsman Consumer Factsheet.

What does this mean to you the consumer?

At the moment the situation is fairly unclear at best. We will let the dust settle on this decision and post more information as and when we know it. In the meantime we have attempted to answer any questions that may arise:

• I haven’t complained yet about unauthorised overdraft charges on my account — am I too late now?

  No — you can still complain and follow the procedures set out on this website. The banks still have to acknowledge your complaint and the still have to provide either a breakdown of charges or duplicate bank statements in line with the Data Protection Act. This means that we can still calculate the sum that you have been overcharged and issue a request for full refund. The banks do not need to act upon this and indeed will write to you and say that in light of the recent ongoing 'Test Case' and subsequent FSA waiver that they do not have to deal with the complaint until a ruling has been made in the High Court.

  However — When the ruling is made, and we fully expect it to be in the claimants favour, you will be ready and the banks will have to pay you back your charges without delay.

• I am in the middle of a claim, how will it affect me?

  The banks and the Financial Ombudsman have suspended all complaints cases regarding bank charges until the ruling in the High Court. This means that the banks will have to keep you personally informed on any developments but DO NOT need to process your claims any further, other than stated above, until a ruling is made.

  However — When the ruling is made, and we fully expect it to be in the claimants’ favour, you will be ready and the banks will have to pay you back your charges without delay.

• The bank has already made me an offer, should I accept it?

  If your bank has already offered you a settlement to resolve your complaint — and the offer is still open to you — you need to decide whether to:

  Accept the offer — in which case your complaint will be settled for good. You won’t be able to complain later about the bank charges covered by the settlement — whatever the outcome might be of the High Court 'test case' on bank charges. or

  Reject the offer. This means that the current offer will no longer be open to you. But your complaint will be reviewed — when the High Court makes its decision on bank charges. No one can say at this stage what this decision will be.

  If you’re not sure on what basis your bank has made you an offer, you should contact us for details.

• What if my question isn't answered here?

  If we haven't covered your question here please either complete the forms anyway and ask your question in the 'Other Information' box or email us at info@unfairbankcharges.net.