The Bank Overdraft Charges Ruling: What Does it Mean for Consumers?

Despite previous hopes that a Supreme Court judgment would offer a lifeline to people who feel as though they have been ripped off by excessive bank charges on overdrafts, it seems that the charges have been declared legal and there’s unlikely to be any respite from large overdraft fees except in cases of extreme financial hardship.

In November 2009, the Supreme Court ruled that terms of this legislation meant the charges levied under the Unfair Terms in Consumer Contracts Regulations 1999 for unauthorised borrowing were able to contest the charges as a rule, or whether the fees were just one of those things and something that customers just had to put up with if they used banking services and overdraft facilities – in which case, the OFT who has taken up the case against seven banks and one building society would not have the power to decide whether the charges actually were fair or not.

The decision will come as a disappointment for 1.2 million bank customers who have lodged claims on unauthorised overdraft fees paid on their current accounts. Some of these claims date back as far as 2001, but a decision had been delayed until after this case was decided.

Customers Complaints about Unauthorised Overdraft ChargesThere has been no action on overdraft charge complaints recently, while this case has been pending, as the finance sector was waiting to see what the result of the case was. It seems that if you’ve made a complaint already, you can now expect it to be looked at, as the Financial Services Authority (FSA) has said that the moratorium on handling unfair charges claims had now been lifted. If you made a claim to your bank for a refund of overdraft fees, it should be dealt with within eight weeks of the judgment, which was given on 25 November 2009.

Individual Banks

Lloyds have said that they would be contacting any customers who had claimed (the Lloyds group also includes Bank of Scotland and Halifax) but that unless they were suffering from financial hardship they would probably not be getting any of their money refunded.

The same applies to Abbey, although they did go one step further and suggest that even after this decision it was still worth contacting them if there was financial hardship.

Financial Hardship

Around 10,000 people have complained to the Financial Ombudsman about bank overdraft charges because their complaints have been rejected by their individual bank, and around half of the people who made a complaint were actually deemed to be suffering from financial hardship, so there is hope for these people being rejected by their banks.

Banks had already started to work on changing the way they charged people for unauthorised overdraft facilities, in anticipation of the outcome of the case and as a result of the negative publicity surrounding it. So that could mean some comfort for people in the future – but unless you can prove that you suffered from extreme financial difficulties at the time that your overdraft fees were spiralling, it’s unlikely that you’ll get any help at all from the banks.

The British Bankers' Association was understandable happy about the decision, although he did acknowledge that court had left it open to the OFT to challenge these unauthorised overdraft fees again if it could find another way using different consumer legislation.

The Office of Fair Trading

The OFT issued a statement saying that “disappointed” by the ruling, which had in effect overturned the previous high court and court of appeal rulings giving them to powers to assess unauthorised overdraft fees to see if they were fair.

It’s continuing to look into the issue, and has said that it will be exploring all of the implications for consumers, as well as for existing and future legislation and regulation. There should be a further announcement from the OFT in December 2009 – watch this space!