Page last updated at 11:02 GMT, Thursday, 9 October 2008 12:02 UK

Early overdraft victory for banks

Mr Justice Andrew Smith
Mr Justice Andrew Smith still has more rulings to consider

Banks have largely won the latest round of a High Court battle over the fairness of overdraft charges.

Judge Mr Justice Andrew Smith says most customers will not be able to use common law to challenge bank charges levied mostly between 2001 and 2007.

But NatWest customers might still have this legal avenue open to them after he failed to give their terms a clean bill of health.

This is one of a series of legal hearings about overdraft fees.

OFT investigation

The OFT wants legal confirmation that it can rule if these charges of up to 35 are fair or not.

Customers have complained they have been unfairly overcharged hundreds, and sometimes thousands, of pounds when falling into the red.

But the banks want to protect the estimated 2.6bn a year of income they gather by charging people for going overdrawn.

The OFT has been investigating bank charges since April 2006.


The judge's ruling on Thursday followed a three-day hearing in July.

Some banks will be breathing a sigh of relief
Marc Gander
Consumer Action Group

His ruling has an impact on the thousands of claims for the refund of overdraft charges which are frozen in county courts.

These county court hearings were suspended last year when the Office of Fair Trading and eight banks agreed on a test case to clarify the situation with overdraft charges.

After today's ruling, they are likely to remain frozen for the foreseeable future.

Latest hearing

The judge's latest ruling focused on whether historic bank terms were unfair penalties under common law, and if customers who had been charged for going overdrawn could challenge them.

Now we have had this judgement we are keen to move on to the next stage as quickly as possible
Angela Knight, BBA

He decided that customers could not challenge Barclays, Clydesdale, HSBC and the majority of Abbey's terms. A Barclays spokesman said they were "pleased" with the decision.

The same was true for HBOS, except for Intelligent Finance's terms which required more examination. More discussion was also needed regarding the terms and conditions of Lloyds TSB's accounts.

The judge said that Royal Bank of Scotland Group, which owns NatWest, needed to provide clearer arguments about their terms before he could give them clearance.

Bank 'relief'

"Some banks will be breathing a sigh of relief as the judge appears to have decided that these charges were not penalties under common law," said Marc Gander, of the Consumer Action Group.

Angela Knight, chief executive of the British Bankers Association, said it was a "positive decision" for the banks.

"The question of penalties was one of the claims made by the OFT which triggered the initial court case. Now we have had this judgement we are keen to move on to the next stage as quickly as possible," she said.

An OFT spokesman said: "This is another staging post in a complex legal process. We are progressing our investigation as quickly as possible and are in continuing discussion with the banks about our provisional views on the issue of fairness."

Battle continues

The judge did indicate that, even though common law largely could not be used to challenge historic overdraft fees, the OFT has the authority to examine these fees under the 1999 Unfair Terms in Consumer Contracts regulations.

There are other legal avenues for customers to explore and they may eventually get their money back.

The banks will appeal against the OFT's initial High Court victory in April . The High Court ruled that the OFT can assess whether fees are unfair.

Another High Court hearing is expected to start in the new year on the substantive issue of whether or not bank overdraft charges are unfair.

Only after these hearings, and any possible subsequent appeals, will people finally know whether they can claim back overdraft charges.

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