OFT narrows bank charges inquiry

Sir Anthony Clarke was involved in the latest court hearing

An investigation into the fairness of unauthorised overdraft charges will be narrowed to just three banks, the Office of Fair Trading has announced.

The OFT will concentrate on the terms and conditions set by Lloyds TSB, HSBC and the Clydesdale Bank in an attempt to speed up the investigation.

The investigation forms part of the second stage of the long-running legal test case on the issue.

The case still involves seven banks and one building society.

In addition to Lloyds TSB, HSBC and the Clydesdale Bank, the other financial institutions involved in the case are Abbey, Barclays, RBS NatWest, HBOS (now part of Lloyds Banking Group) and Nationwide Building Society.

Key conditions

The OFT has already made it clear that its own investigations are likely to conclude that overdraft fees are unfair.

No banks' terms have been given a clean bill of health Office of Fair Trading

It may argue that the charges should therefore be reduced substantially from their current levels, which sometimes amount to more than £30 for bouncing a cheque.

But, as the investigation continues, the OFT said that the terms and conditions of three of the banks were representative of all of them and so it would be conducting a "more focused" inquiry.

"The investigation into the other banks' terms is merely on hold and the OFT has stressed that no banks' terms have been given a clean bill of health," an OFT spokesman said.

It expects to publish its findings on the fairness of overdraft charges by the end of the year.

The latest move by the OFT has been welcomed by supporters of both sides of the dispute.

"The OFT believe that by looking at a representative sample of bank terms and conditions, the investigation process will be streamlined and shortened," said a spokesman for the British Bankers' Association.

"The banks certainly welcome this initiative and we will continue to co-operate fully and constructively to the ongoing inquiry."

Louise Hanson, head of campaigns at the consumers' association Which?, said: "We are pleased that the OFT is doing whatever it takes to bring this saga to an end as quickly as possible.

"We welcome its assurances that all the banks are still within its sights and we remain confident that the unauthorised overdraft charges of all banks will be found to be unfair."

Test case

In the meantime, the first part of the test case surrounding the issue reached a new stage this week when the banks were given permission by the House of Lords to appeal against a recent Appeal Court judgement on bank charges.

In March, the Appeal Court upheld a High Court decision that the fairness of overdraft charges could be investigated by the OFT.

This first stage of the litigation, which started in July 2007, has already lasted for 18 months.

During this time nearly all new claims for the return of bank charges have been put on hold in the county courts and at the Financial Ombudsman Service.

Behind the scenes, both sides have been preparing their arguments for the eventual second round of court hearings, in which the fairness of bank charges will be decided.