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Last Updated: Thursday, 15 November 2007, 13:37 GMT
OFT rejects banks' charges claim
The High Court in the Strand
A High Court hearing will sort out the issues next year
The Office of Fair Trading (OFT) has rejected the main defence put forward by banks over their current account charges ahead of a key court case.

The banks argue their charges pay for a service provided to customers, and are therefore not covered by current consumer regulations.

But the OFT says it believes none of the charges applied when customers go overdrawn constitute a service fee.

The matter is due to be heard in the High Court in January 2008.


At the moment consumers pay for banking through surprises and through stealth
John Fingleton, Office of Fair Trading chief executive

In its formal submission to the High Court, the OFT also criticises some of the banks' terms and conditions, which it says "do not provide the consumer with a fair opportunity to understand how they apply".

It believes some of them are "liable to mislead" customers.

In a separate interview for the BBC's Money Programme to be broadcast on Friday evening, OFT chief executive John Fingleton dismissed the idea that customers enjoy free banking.

"At the moment consumers pay for banking through surprises and through stealth," said Mr Fingleton.

"They don't see what they pay - very often they pay when an unexpected event happens like an unauthorised unexpected overdraft," he added.

Legal process

The British Bankers' Association (BBA) insisted that the fees customers pay are "fair and clear".

"The banks have actually made it clear that they see the unauthorised overdraft fees as a fee for a service," said BBA chief executive Angela Knight.

And the organisation criticised Mr Fingleton for the timing of his remarks.

"We do find it extraordinary that a statutory body that is party to ongoing litigation with the banks... should be making statements through the media which could, of course, be prejudicial to the court case and the OFT's own work," said a spokesman.

The question of fees versus penalties is at the nub of the dispute.

People should carry on claiming while we wait for the outcome from the High Court
Adam Williams, Which?

The OFT says penalty charges fall foul of the 1999 Unfair Terms in Consumer Contract Regulations, and it wants the High Court to rule accordingly.

In their formal defence submitted to the court, the banks insist their "service fees" fall outside the scope of the legislation.

But the OFT's response to that defence rejects this argument outright.

It says none of the charges levied by the banks relate to the provision of services to customers and therefore are subject to the Unfair Terms regulations.

The test case is scheduled to be heard sometime between 14 January and 28 February 2008, and could take up to two weeks.

Consumer action

The losing side is expected to appeal, with the case probably ending up in the House of Lords, a process which could drag out the matter for more than a year.

It is estimated that banks have so far refunded about 570m to 330,000 customers.

Since the test case was first announced at the end of July, most courts have been halting new and existing claims for the return of overdraft charges until the legal issues are settled.

This means the banks are protected, for the time being, from any new legal action in the courts and from any new complaints to the Financial Ombudsman Service.

The banks are also still covered by a "waiver" granted to them by the Financial Services Authority (FSA) at the end of July.

This means they do not have to make progress with any new or unresolved complaints about their charges until the outcome of the court case.

But consumer groups are urging people not to stop complaining.

"People should carry on claiming while we wait for the outcome from the High Court," said Adam Williams from Which?

"Even though the banks won't process the complaint, they will still have to acknowledge it.

"And if the OFT wins, as we hope it will, that means your complaint is already in the system and so you should be paid out more quickly," he added.

The FSA said the waiver would remain under review, and is expected to announce later this month whether that waiver should be continued, changed or even revoked.

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