Page last updated at 14:01 GMT, Tuesday, 2 December 2008

Banks plan for overdraft refunds

By Ian Pollock
Personal finance reporter, BBC News

NatWest branch
The RBS NatWest may have to pay out millions if it loses the test case

The RBS NatWest bank is planning to refund overdraft fees to customers "pro-actively" if it loses the continuing test case over bank charges.

An internal bank document reveals for the first time the preparations banks are making should they lose their case.

The document acknowledges the group may have to refund past charges, which could run to many millions of pounds.

The bank said it was just drawing up contingency plans to deal with one possible outcome of the test case.


The RBS NatWest is waiting, with seven other banks, for an Appeal Court judgement on whether or not the Office of Fair Trading (OFT) can decide if their overdraft charges are unfair.

All customer accounts that are due a refund will be calculated as accurately as possible
RBS NatWest

The bank document, passed to the BBC, indicates that many customers can expect refunds if the banks eventually lose their case.

It says a team from the bank is "preparing systems and processes to pro-actively refund charges to the group's customer base."

The bank currently has about 13 million customers, though not all will have been charged overdraft fees in the past few years.

"All customer accounts that are due a refund will be calculated as accurately as possible," the bank document says.

"Any monies will be accurately accounted for and reconciled," it adds.

The document says the bank aims for "avoidance of group reputational damage and/or loss of funds."

Contingency plan

An RBS spokesman denied the bank was planning to throw in the towel if it lost the current appeal.

Mr Justice Andrew Smith
Mr Justice Andrew Smith handed down the main judgement in April

He said its plans simply reflected the fact that it was obliged by the Financial Services Authority (FSA) to deal "efficiently and swiftly" with the customers' complaints if it eventually lost the legal argument.

"This work stream has absolutely no bearing on how we see the outcome of the test case," he said.

"With an organisation of our size and our different brands, complying with these requirements demands careful contingency planning and this document merely confirms that RBS is taking its obligations in this respect seriously as it has done throughout the whole test case process," he added.

Sharon Coleman of the campaign group Legal Beagles said: "We would welcome a pro-active approach if they intend resolving the matter without further appeals."

"Consumers have become increasingly frustrated by the apparent lack of progress in the test case, especially those affected by financial difficulty," she added.


For the past three years the UK's banks have been besieged by hundreds of thousands of angry customers aided by high-profile internet and media campaigns.

The banks have shown that they are not to be trusted
Marc Gander, CAG

The customers have been demanding the return of high charges, levied by the banks whenever customers go overdrawn without permission.

In 2007, eight financial institutions and the OFT agreed to stage a test case in the High Court to resolve the legal issues.

At that point all cases in the county courts, and with the Financial Ombudsman, were suspended.

The first round of High Court hearings, earlier this year, was a defeat for the banks.

Mr Justice Andrew Smith ruled in April that the Office of Fair Trading (OFT) had the power, under the 1999 Unfair Terms in Consumer Contracts Regulations (UTCCR), to decide if the banks' charges were fair or not.

A subsequent appeal was heard in October and the judgement is now expected in the New Year.

None of the other banks involved in the test case was prepared to describe exactly what it would do if it lost.

But HSBC and Lloyds TSB acknowledged having some sort of contingency plan in place.

And there is no doubt the others have them as well.

One of the conditions the FSA has set down for the banks is that they make "preparations for dealing with relevant charges complaints when this direction ends and updating those preparations as the outcome of the test case becomes clearer."


An analysis of the 2007 annual reports for the five biggest banks suggested that up until the summer of that year, all UK banks had between them paid out £784m in refunds to nearly 378,000 customers.

In its half year results, the Nationwide warned its investors recently that losing the court case could cost it a lot of money.

"Depending on the court's determinations, a range of outcomes is possible, some of which could have a significant financial impact on the society," it said.

Marc Gander of the Consumer Action Group (CAG) said that it was worrying that RBS NatWest was planning to take its own responsibility for calculating its customers' losses.

"We will be watching this very closely. The banks have shown that they are not to be trusted," he said.

"We will be encouraging all bank customers to calculate their own losses and to insist on getting all of it back plus interest."

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