Supreme court rules in favour of banks

Wednesday 25th November 2009

Billions of pounds in refunded overdraft charges will not be paid out to customers after the supreme court ruled in favour of the banks.

Lord Phillips revealed the decision in favour of the banks, which wanted to stop the Office of Fair Trading (OFT) using consumer protection rules to investigate the fairness of their charges on unauthorised overdrafts.

It is believed the seven banks and one building society had an estimated £2.6 billion of annual income at stake.

The OFT has said in the past that if they lost the case they would attempt other means to stop the charges, such as a full competition enquiry.

Lord Phillips said the OFT "could look at fairness through other powers". He told the court: "This will not close the door on the OFT's investigations and may well not resolve the myriad cases that are currently stayed in which customers have challenged the relevant charges."

The decision today follows more than two years of test case litigation. Previously the banks have lost at both the High Court and Appeal Court stages of the test case, with both agreeing with the OFT that it has the power to scrutinise the fairness of the overdraft charges.

All new claims against banks were effectively suspended from July 2007, when the OFT and the banks agreed to stage the test case.

A statement from the British Banker's Association (BBA) in response to the decision said: "The Supreme Court has today confirmed that the banks' unarranged overdraft charges are an important part of current account services which the banks provide to their customers and that the amount of those charges is not assessable for fairness.

"The Banks acknowledge the unanimous decision of the Supreme Court to allow their appeal in respect of these charges. We recognise this issue has been of real concern to a large number of our customers and we are pleased that this decision now brings clarity for all parties.

"The banks will work with the regulators to ensure that the outstanding customer complaints are brought to a swift conclusion. We will also continue to work together with the OFT in connection with its on-going market study."

But Kevin Mountford, head of banking at moneysupermarket.com, said this was not the "end of the story", adding that he expected the OFT to continue with their appeal on unfair charges.

Mr Mountford said: "There is no doubt that this is a set back for the OFT and for the million or so customers who are trying to reclaim their bank charges.

"Customers need to vote with their feet. There is already a lot of choice and competition in the market - and there are some good deals available such A&L's current account or the new Santander zero current account.

"Don't be afraid to shop around for a better deal - switching really isn't difficult."

While Which? chief executive, Peter Vicary-Smith, added the decision was a "bitter blow for the millions of people who have been patiently waiting to get their bank charges back".

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