Page last updated at 16:07 GMT, Monday, 22 February 2010

Bank overdraft charges face new legal attack

By Ian Pollock
Personal finance reporter, BBC News

Scottish pound notes
The Bank of Scotland will have to justify its charges in June

A law centre in Scotland has revived the legal campaign against bank overdraft charges.

In November, the Supreme Court ruled that the scale of bank charges could not be challenged as unfair under consumer contract rules.

But a client of the Govan Law Centre has won the right to challenge the Bank of Scotland's overdraft charges under the Consumer Credit Act.

The bank will now have to demonstrate that its charges are not excessive.

"Over the last few weeks, UK banks have been telling one million customers that there were now no grounds to reclaim bank charges, standing November's Supreme Court's decision," said Mike Dailly of Govan Law Centre.

"The Bank of Scotland now faces a fresh challenge that charges were excessive and unfair under the Consumer Credit Act.

"That is a potentially devastating case for them to answer, because under this new law, the onus of proof is on the bank to show that charges were fair," he added.

No refunds

Last November's Supreme Court ruling was swiftly followed by a decision of the Office of Fair Trading (OFT) to throw in the towel.

About a million people had claims outstanding for the return of their unauthorised overdraft charges.
Last November's Supreme Court victory meant most claims have now been rejected by the banks and the Financial Ombudsman Service, with only hardship claims succeeding.
Claims that were on hold in the court system will probably be whittled away at individual hearings.
But success for Ms Sharp in Glasgow will open up a new line of argument.
This could lead to many claims being revived, especially if there is a fresh media campaign on the issue.

The regulator had been pursuing a test case against the banks since July 2007 to establish that it had the power, under the 1999 Unfair Terms in Consumer Contracts Regulations (UTCCR), to decide if bank charges were fair or not.

After winning the argument at both the High Court and Appeal Court stages, the regulator lost decisively at the Supreme Court.

This appeared to bring to an end to the attempts of hundreds of thousands of people to force their banks to refund them their past overdraft charges.

However, a Glasgow woman, Jennifer Sharp, whose case has been on hold since 2007, revived her case last Friday at the Glasgow Sheriff Court.

New claim

Despite opposition from the Bank of Scotland's barrister, Sheriff Baird allowed Ms Sharp to amend her legal claim in the light of the Supreme Court judgement.

Her lawyers put forward a new point, arguing that under a 2006 amendment to the Consumer Credit Act, there had been an unfair relationship between her and her bank, which was illegal.

The crux of her case was that it was unfair to have been charged £750 for running up an unauthorised overdraft because the charges had been used not only to deal with her, but also to subsidise the cost of the bank's free current account service to those of its customers who stayed in the black.

The OFT had not pursued this argument because it is one that is open only to individuals, not a regulator such as the OFT.

Ms Sharp's renewed claim also involves an argument that an unfair relationship exists under the UTCCR as well.

The case will now go to a full trial on 11 June.

"It would be inappropriate to comment on any customer case before the courts as it is still part of an ongoing legal process," said a bank spokesman.

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