Banks win overdraft fees case

It is estimated that over £2.6bn was at stake had the ruling been in favour of the OFT. Campaigners supporting the OFT review are said to be shocked and disappointed at the ruling.

Banks have, unsurprisingly, welcomed the ruling, stating that there have been significant changes to current account packages recently, and noted that such unauthorised overdraft charges are avoidable.

Seven banks and one building society had asked for the previous ruling, in favour of the OFT, to be overturned. A three day appeal to the House of Lords saw them argue that a decision against them would lead to a 'deluge of litigation'.

Customers who have already received payments will be able to keep them as they were made as gestures of goodwill. New claims were effectively suspended in July 2007 when the banks and the OFT agreed to a test case to test the legality of overdraft charges.

Despite losing this case, the OFT has said that it will investigate using other powers, such as instigating a Competition Commission enquiry to attack overdraft fees.

In his explanation of his ruling, Supreme Court President, Lord Phillips, said that customers agreed to pay overdraft charges as part of the price of having a current account, so they fell outside the scope of the appropriate regulations.

Giving a glimmer of hope to claimants, Lord Phillips said "This will not close the door on the OFT's investigations and may well not resolve the myriad cases that are currently stayed [put on hold] in which customers have challenged the relevant charges."

The OFT said that it was "disappointed" with the judgement.

"The OFT will now consider the detail of this judgment before it makes a decision on whether or not to continue its investigation into unarranged overdraft charging terms," it said in a statement.

"It will also explore with others the implications for consumers and for existing and future legislation and regulation."

It said it would make another announcement in December.

Research by the OFT published last year found banks earned around a third of their retail revenues from unarranged overdraft charges that were "difficult to understand, not transparent, and not subject to effective consumer control".

Marc Gander, of the Consumer Action Group, said that he was "shocked" about the Supreme Court ruling.

"This is completely unexpected. It is a devastating blow," he said.

Phil Jones, from the consumers' association Which?, said that he was "utterly outraged" by the ruling.

But Martin Lewis, of Moneysavingexpert.com, said: "This may be a setback for reclaiming but it is not the end. The likelihood is the money is not coming back for anyone who has got claims on hold. There is still hope here, but we have got to do a lot of reading and a lot of legal work."

Some of these campaigners said that the OFT could explore other avenues to tackle the banks about charges, but this would require another round of litigation.

The British Bankers Association, which represents the banks, said it considered the decision as a "clarification of the law" rather than a "victory".

"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," it said.

"The banks will work with the regulators to ensure that the outstanding customer complaints are brought to a swift conclusion."

Angela Knight, from the BBA, was asked whether they would continue to make unauthorised overdraft charges.

"The banks are mindful of their customers, they know the concerns of those who have paid the unauthorised overdraft fees and those who have not," she said.

"Individuals can avoid any charge by putting their overdraft arrangements in place first."

Sarah McCarthy Fry, Exchequer Secretary to the Treasury, said the government were "determined" to make sure the system was made fairer in future.

"Consumers, who have been waiting a number of years, will be extremely disappointed with this outcome.

"It is clear that in the past, banks were not thinking enough about their customers. That needs to change for the future.

"The government will work with the OFT and Financial Services Authority to reach a new framework for fairer bank charges going forward."

Source: BBC