News In Focus
25 April 2008
OFT wins first round of battle against the banks
The High Court in London has ruled that bank charges are subject to regulation by the Office of Fair Trading (OFT).
The ruling is only the first stage in the litigation, but could pave the way for refunds to be made to thousands of customers who have been charged for going over their agreed limits – a charge that is said to earn UK banks between £2 billion and £3.5 billion every year.
Mr Justice Andrew Smith said the charges, which can exceed £30, are subject to the OFT’s unfair contract rules. His ruling was given in a test case brought by the OFT, seven banks and a building society – Abbey, Barclays, Clydesdale, HBoS, HSBC, Lloyds TSB, RBS and the Nationwide. The banks had challenged the OFT's argument that the charges came under the Unfair Terms in Consumer Contracts Regulations.
However the ruling does not cover whether the charges are fair, as argued by the banks – a decision will be made on this at further hearings. The judge also found in favour of the banks that the charges were not unenforceable on grounds of being penal.
Mike Dailly, principal solicitor at the Govan Law Centre who led a consumer campaign against the charges, said the decision was still a “tremendous victory for the British public”.
“Mr Justice Smith’s decision means that the unfair bank charges campaign is well and truly back in business in Scotland. We will be seeking the recall of sists in sheriff courts as there is now no good reason claims should be frozen. The public should get their money back now”, he claimed.
Question of fairness
“The test before any court will now be one based on ‘fairness’. That is essentially a question of evidence and each case may ultimately turn on its own facts.”
Mr Dailly also maintained that there was no longer any good reason why cases in the Scottish courts should remain frozen, as many have been pending the ruling.
Annual results for banks show that £559 million has been paid out so far in refunds for those who were charged for exceeding their limits. Campaigners claim that the charges banks impose are excessive, as when customers go over their agreed overdraft limit or take out an unauthorised overdraft, it only costs the bank £2.50.
Mr Dailly went on: “People in Scotland now need to ask for a refund. They can go back five years for a refund, and now that the small claims limit in Scotland is £3,000, there is an accessible and realistic legal remedy available to citizens.”
Govan Law Centre's website on bank charges and refunds is www.bankcharges.info .