Disappointment for Consumers over Bank Charges Ruling

25-Nov-2009

The week's ruling by the Supreme Court relating to unfair bank charges was a disappointing one for consumers.  The case was between the Office of Fair Trading (OFT) and seven high-street banks and one building society, with the aim of determining whether the Office of Fair Trading had the right to decide whether bank charges were unfair.  In a judgement that came to a shock to all those who had campaigned for the OFT and consumer fairness, it was ruled that the OFT did not have this right.   

Had the verdict been reversed, the OFT has already made it clear that they would have ordered the banks to repay billions of pounds of charges to consumers, for excessive charges made on current accounts.  The charges were levied mainly when account holders exceeded their agreed overdraft limits, and could amount to £39 a time.  However there have also been substantial fees charged for a bounced cheque ? due to insufficient funds being in the account to honour the payment.  

The banks have justified the payments by saying they were necessary to cover administration charges for the failed transactions.  However, the actual cost to the banks was estimated to be much lower.   Consumers still do have the right to appeal to their banks against charges that they feel to be unfair, however this verdict means that the number of claims is likely to be far lower than anticipated.

The chief executive of consumer organisation Which?, Peter Vicary-Smith says: "The outlook is bleak for anyone with an outstanding claim and we're concerned that yesterday's ruling could drive people into the arms of unscrupulous claims handlers. Beware of companies who contact you promising to get your bank charges back and never pay an upfront fee.  If you're in financial hardship, tell your bank. They're unlikely to give you your money back, but they have to take your circumstances into account and may waive any future charges. If your bank refuses to help you, then go to the Financial Ombudsman."

Liberal Democrat leader Nick Clegg made reference to the ruling in a speech this week, saying that "it simply isn't right that someone on a low income should pay £25 or more to their bank just because they're overdrawn by a pound or two.
"It is absolutely outrageous that one third of all profits banks make on their current accounts comes from unauthorised overdraft charges.  The only way to protect millions of customers from being ripped off by their banks is to now change the law."

Whether or not any eventual changes are made to the law, a number of banks have already reduced their unauthorised overdraft charges to more manageable levels.  This suggests that banks can comfortably process these transactions at much lower prices, and it is hoped that now that attention has been drawn to the issue consumers will see a significant difference in the charges brought by their banks from now on.  

However, it is also important to ensure that when you open a new current account you carefully read through the terms and conditions.  The charges may be steep, but the banks are legally obliged to tell you about them when you sign up so by knowing in advance, you may be able to avoid a nasty surprise.