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Last Updated: Friday, 24 August 2007, 07:42 GMT 08:42 UK
Judge calls halt to bank charges
By Ian Pollock
Personal finance reporter, BBC news

Customer at a Barclays ATM
Barclays has so far repaid 87m in overdraft charges this year
A judge has stopped Barclays bank taking any more penalty charges and interest from a customer who sued for their return.

Judge Abrahams, at Luton County Court, has ordered Barclays to stop applying the charges until a High Court test case settles the legal issues involved.

Barclays said it will be entitled to reclaim any further charges from Nadine Fry should the test case be successful.

The five main banks have handed back almost 400m in charges since January.

Barclays itself has so far repaid 87m in overdraft charges this year.

The judge suspended Ms Fry's claim until the outcome of the test case.

John Fry, who pursued the case for his daughter, explained how he persuaded the judge also to suspend any further penalty charges.

"I argued that a stay would have serious financial implications for my daughter as she would have to continue meeting interest payments on her debts, whereas the sum in question (1,384) would have been sufficient to clear her debt entirely," he said.

'Not general policy'

Judge Abraham's decision is likely to be deeply disturbing to the UK's banks, in case other judges around the country adopt a similar line.

Luton county court order
Luton county court's order against Barclays bank

A spokesman for the Judicial Communications Office (JCO), which speaks on behalf of judges, said: "This is not a general policy - each case is assessed on its own merits."

In the past year, tens of thousands of bank customers have been winning refunds of overdraft penalty charges from their banks, amounting to millions of pounds.

To resolve this vexed issue, the banks, along with the Office of Fair Trading (OFT), agreed at the end of July to stage in the High Court next year a test case on the legality of the charges.

The OFT believes they are an unfair and illegal penalty under consumer protection regulations.

The banks say they are a fair charge for providing a service to their customers while their accounts are in the red.

Waiver win

At the same time as announcing the test case, the banks won from the Financial Services Authority (FSA) a waiver from the current rules so that they can largely stop processing new claims against them until the legal issues are sorted out.

Likewise, the Financial Ombudsman Service (FOS) decided to stop dealing with the thousands of similar complaints it has been receiving.

The banks also asked the courts to suspend all existing legal actions against them for the time being.

However, any decisions on cases that are already before the courts have been left up to local judges to decide.

Marc Gander of the Consumer Action Group said the Luton judge's decision was both just and encouraging.

"This is what should have been done from the start to maintain fair play."

"This waiver adopted by the FSA and the Ombudsman has been profoundly unjust because it is so one-sided," he said.

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