Decision time for Bank Charges Case

An appeal in the House of Lords is due to begin this week that may determine the future of overdraft fees incurred by millions of customers across Britain.

The appeal, put forward by some of the UK's main banks, will be heard by five Law Lords and is in response to a decision made earlier this year by the Appeal Court.

The ruling upheld from last year gave the Office of Fair Trading (OFT) the power to decide whether or not bank account charges were fair.

There are currently around one million people waiting to find out if they can reclaim previous bank charges.

Banks make around £2.5 billion of income every year from charges applied to customers accounts as a penalty for going overdrawn without permission or paying a cheque or direct payment that bounces, billing up to £40 a time.

Marc Gander of the Consumer Action Group (CAG) said: "I hope the House of Lords will make a very clear finding that the bank charge terms are subject to the Unfair Terms in Consumer Contracts rules."

The hearing comes nearly two years after the OFT and the banks made a joint decision to go to court in order to resolve the legality of bank charges.

This came at a time when banks were being bombarded by claims from angry customers that felt the charges were unfair. These claims were being fired both directly and through the courts.

Banks paid out an estimated £784m to around 378,000 customers before the test case agreement in 2007, rather than opposing the attempts made by customers contesting the fees.

However, after both sides agreed to the litigation, it was agreed by the Financial Services Authority (FSA) and the courts that any future claims would be put on hold until a decision was made.

Nick Spooner of the campaign group Legal Beagles said: "It's going to be a very significant outcome, either way.”

The banks have always defended the charging system, describing them as reasonable, fair and legal.

If they are successful in the appeal, it will be a big blow to the OFT and campaigners involved in the bank charges case.

The banks employed Jonathan Sumption QC to represent them in the case - one of the UK's top civil barristers.

Ray Cox QC – a barrister specialising in banking said: "If anyone can do it for the banks, he can, but he's got an uphill task. But you can never be sure; the Law Lords will certainly not rubber-stamp the decisions of the other courts."

If the banks were to suffer a total defeat it would result in bank charges being abolished, which would probably trigger the introduction of monthly fees for current accounts.

It could also mean that banks would have to refund billions of pounds to customers, dating back over six years ago or more.

Some banks such as RBS have already developed contingency plans to prepare them for the possibility of this outcome, allowing them to refund bank fees.

"A victory for the OFT would swiftly open the door for refunds of past charges," said Mr Spooner.

"If the OFT rules they were indeed unfair, I believe they will have to be refunded in total, as the unfair terms triggering the charges will be unenforceable."