Barclays begins charges defence

By Ian Pollock
Personal finance reporter, BBC News

Barclays is the second lender to address the court

Barclays has told the High Court it was "throwing down the gauntlet" to the Office of Fair Trading (OFT) in the row over bank charges.

Iain Milligan QC was representing the bank, one of eight lenders accused of levying unfair overdraft charges.

Mr Milligan said that anything related to the price of running a current account could not be challenged under consumer regulations.

The OFT wants the court to rule it can decide the banks' charges are unfair.

'Academic'

Seven banks and the Nationwide building society have agreed to the test case to clarify their legal position after a mass of litigation, which has seen hundreds of thousands of consumers claim refunds totalling hundreds of millions of pounds.

Mr Milligan was addressing the court on the fourth day of the long-awaited hearing.

Barclays, in common with the other banks, argued that the OFT was trying to use the Unfair Terms in Consumer Contracts legislation improperly as a form of price control.

Referring to charges levied for bouncing a cheque, he said: "The whole of this debate is academic unless the OFT is going to contend that any unpaid item fee at all is unfair.

"The existence of the right itself [to levy an overdraft charge] cannot cause an imbalance in the contract," he added.

Mr Milligan spent much of the morning explaining Barclays' defence that overdraft services were part and parcel of the bank's arrangements for operating customers' current accounts.

"Barclays' case is that it is obliged to supply the whole bundle of services, for which the customer is obliged to pay the whole bundle of charges," he added.

"If there is a primary obligation to provide that good or that service, it forms part of the main subject matter of the contract," he said.

'Core'

A fundamental part of the argument put forward by all the banks is that the regulations on unfair terms in consumer contracts cannot be applied to the main or core part of a contract with a customer.

BANK REFUNDS IN 2007 Barclays - £87m HSBC - £116m HBOS - £79m Lloyds TSB - £36m RBS - £81m Source: Bank interim results Key court case under way

Mr Milligan denied the OFT's contention that Barclays and the other banks were levying fees for purely preparatory work before any service was provided, rather than providing an actual service to their customers.

"If there is at least one obligation on the bank, that is a service, and it is true for both new and old terms," he said.

Mr Milligan also denied the OFT's accusation that the way in which banks have been rewriting their terms and conditions amounted to a possible incitement to customers to commit a criminal offence, should they knowingly write cheques which exceed their account balance.

The barrister then talked the judge hearing the case through Barclays' current account terms and conditions.

"Everything is plain and intelligible", he told Mr Justice Andrew Smith.

As well as challenging the banks under the Unfair Terms in Consumer Contract Regulations, the OFT is also trying to dispute their charges as unfair penalties under common law.

But speaking for all the banks, Mr Milligan argued that this approach was invalid, as the Unfair Terms regulations - which derive from a European Union directive - had now supplanted the common law relating to penalties in this area.

'Enormous burden'

At the beginning of the day's hearing, Mr Justice Smith acknowledged that the case might now last until the middle of February.

It had originally been scheduled for eight days.

Earlier the judge commented on the scale of material under consideration, describing the volume of evidence submitted as an "enormous burden".

The barrister representing the Royal Bank of Scotland has already put forward its defence.

The other banks and the Nationwide are expected to finish their submissions by next Monday, with the OFT then having an opportunity to reply at length.

The outcome of the long-awaited court case could bring a fundamental change to the UK current account market.

If the OFT argument is upheld, it could mean banks and building societies having to return billions of pounds collected from customers over the past six years.

However, whichever side loses is expected to appeal, possibly all the way to the House of Lords, meaning the issue may not be resolved until next year.