Bank charges ruling 'was wrong'

Mr Justice Andrew Smith made the original ruling in April

The Court of Appeal has been told that a High Court judge was wrong in making a crucial ruling on bank overdraft charges.

Seven banks and the Nationwide Building Society are appealing against a ruling by Mr Justice Andrew Smith earlier this year.

He decided that the Office of Fair Trading (OFT) had the right to decide if overdraft charges were fair or not.

Thousands of bank customers are awaiting the result of the case.

Laurence Rabinowitz QC, for RBS NatWest, said some of Mr Justice Smith's reasoning was "not justified" and "schizophrenic".

Test cases

The banks and the OFT are in the middle of a series of test cases to decide if the regulator has the authority to rule if bank overdraft charges are fair.

They [overdraft charges] are almost bound to be unfair because Peter is paying for Paul Mr Justice Waller

Mr Rabinowitz argued that the OFT could not challenge the price banks charge for their overdrafts, because the 1999 Unfair Terms in Consumer Contract Regulations were not intended to be a method of price control.

"Assessment of fairness shall not apply to the main subject in the contract or the price charged," he said, quoting a key part of the regulations.

"The banks say the relevant terms cannot be assessed against the adequacy of the price being charged."

Mr Rabinowitz said that the OFT had told the banks that in its view, the charges were unfair.

He argued that it would have serious consequences for the banks if the OFT was able to enforce its view.

"The charges make up a significant part of the banks' remuneration for providing a bank account," he argued, in relation to both future charges and past charges.

One of the appeal court judges, Mr Justice Waller, asked if the structure of bank charges, where customers in the red subsidise those who always stay in the black, was inherently unfair.

"They are almost bound to be unfair because Peter is paying for Paul," he suggested.

Mr Rabinowitz rejected that view.

He said that in the context of the whole package of current account services provided by the banks, the charges were not unfair.

'Unsatisfactory'

Mr Rabinowitz went on to criticise some of Mr Justice Smith's original judgement. He said the judge had tried to view the banks' current account contracts through the eyes of the "typical consumer".

But the QC argued that this meant reading words and interpretations into the 1999 regulations that were not there.

"This is vague and unsatisfactory," he said.

"The issue does not depend on the perception of the typical customer about the core of the bargain. Regulations make no provision for this."

The appeal is expected to last six days, spread over this week and next week.