What now for bank charges?

Written by admin on November 26, 2009 – 9:55 am

Consumers have been dealt a huge blow today in the ongoing battle to reclaim bank charges.

The Supreme Court has overturned two earlier court rulings and said that the Office of Fair Trading (OFT) cannot investigate unauthorised overdraft charges under consumer protection rules which govern fairness.

The court battle between the OFT and eight banks and building societies has been running since July 2007. Read our article from February ‘Are bank refund charges finally on their way?’ for a breakdown of the history of the case.

Kevin Mountford, moneysupermarket.com’s head of banking was at the Supreme Court for the hearing. He said: “It was evident that the announcement was a shock to all in attendance. There was a high expectation that the Supreme Court would have upheld the decisions of the High Court and Court of Appeal. If it had, the OFT would have had the opportunity to assess the extent to which these charges are unfair.

“The big question is where this leaves consumers. It’s unlikely that those awaiting refunds will receive any money any time soon and they may never receive it as the banks are likely to assess claims on a case-by-case basis. However, hope isn’t all lost. We shouldn’t underestimate the power and value various action groups have had on this campaign. They won’t give up and will continue fighting for this cause.”

Can the OFT appeal?

Today’s ruling was the appeal, meaning there is now no way the OFT can challenge this decision further.

However, the judge did explain that the OFT could potentially bring a case under regulation five, where this morning’s overturned case related to regulation six.

The OFT will now need to consider its legal position but it could well make a fresh challenge.

Some consumer groups have already suggested that this is a new hope for people who want to reclaim their money and avoid high charges in the future but what the OFT will do next remains to be seen.

It could be that the bank charges case is far from settled.

Can I reclaim my charges?

The outlook isn’t great for the 1.1million people who have lodged a claim to have their bank charges refunded.

All claims, except those from people in financial hardship, have been frozen since the court case began back in July 2007 under the terms of a waiver set up by the Financial Services Authority. That waiver has been lifted in light of today’s judgement. Current account providers will now start working through the cases that are in the system and are likely to be assessed on a case by case basis. However, experts are warning customers not to bank on a refund.

It remains to be seen if the OFT make a new challenge and if that would prompt the FSA to once again freeze outstanding complaints about charges.

What can I do?

If you are unhappy with your bank’s system of charges, now’s the time to act.

Kevin said: “Customers need to vote with their feet. We mustn’t forget that we have a very competitive current account market here in the UK – much more so than in many other countries – and there is choice out there. While the decision by the Supreme Court may have found in the banks’ favour, current account providers will have to think very carefully about their banking structures going forward.

“As a result of the bank charges campaign, consumer awareness of terms and conditions has enhanced and we’ve already seen a number of providers including A&L, Halifax, Barclays and Abbey change their current account structures.

“The onus is now on the consumer to ensure they are getting the best deal for this needs. Don’t be afraid to shop around for a better deal – switching really isn’t difficult.”

For more information on how easy it is to move bank accounts, watch our video ‘How to switch your current account’.

Changing face of banking

Banks have already been readying themselves for change, so it’s likely the system will adapt despite the OFT’s setback.

Many banks have already changed their overdraft charges. For example, Halifax is going to start charging customers a daily fee for using an overdraft facility from December 6- £1 a day for an agreed overdraft of up to £2,500; £2 a day for authorised borrowing above that amount. If you go overdrawn without permission, the charge will be £5 a day.

Read our article’Halifax overdraft costs to soar’ for more information.Other banks may follow Santander’s path – its soon-to-be launched Abbey ZERO account is fee-free but only available to its mortgage customers. Read our ‘Review of the week’for more information on this new account.

Of course, deals like that are likely to mean that customers end up paying indirectly for the cost of running their current account – but for many people that will be easier to swallow than an upfront charge.

Three golden rules for current accounts

If you’re disappointed by today’s ruling, follow our three golden rules to avoid being caught out by high charges.

Stay within your limits- Never be tempted to exceed your overdraft limit, the charges will be considerably higher than for approved borrowing.
Seek permission- If you do think you’ll struggle to remain within your overdraft, contact your bank as soon as possible and see if you can arrange a temporary extension.
Switch- If you aren’t satisfied with what your bank charges or you want a clearer system of charges, don’t be afraid to switch. Use our current account toolto compare a range of providers.

For more on the background to the bank charges case and how we got to today, read our article from February ‘Are bank refund charges finally on their way?’.

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