The Supreme Court as ruled in favour of the banks which is a bitter blow and disappointment for millions of customers who were expecting billions of pounds in refunds.
In earlier hearings at the High Court, Court of Appeal, the Office of Fair Trading (OFT) won resounding victories but the banks regrouped and lodged a three day appeal in June of this year. As part of their argument they stated that they would receive a ‘deluge of litigation if they lost the final outcome.
It is estimated that the banks earn around £3bn a year from unauthorised over draft charges and with the potential of claims going back as far as July 2001 the loss to the banks would have been enormous.
Where does the OFT go from here?
The ruling stated it can still assess the fairness of charges but under different grounds alternatively the OFT may approach the Competition Commission. The OFT have said they will make a further announcement on this in December.
This is taken from the OFT website;
The OFT is disappointed by today's Supreme Court judgment, which overturns previous High Court and Court of Appeal rulings that unarranged overdraft charging terms can be assessed in full for fairness. It will also be disappointing for many consumers.
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 will also explore with others the implications for consumers and for existing and future legislation and regulation. The OFT expects to make a further announcement in December.
The OFT set out its concerns in relation to unarranged overdraft charges as part of its 2008 market study. This found that banks earn around a third of their retail revenues from unarranged overdraft charges that are difficult to understand, not transparent, and not subject to effective consumer control.
The OFT will be seeking discussions with banks, consumer organisations, the FSA and the Government in the light of this judgment.
Can the OFT appeal against this ruling?
The Court said it would not allow an appeal by the OFT to the European Court of Justice. This also happened to the banks with the Court of Appeal and they subsequently overturned this ruling. So could the OFT do so as well?
What happens to those 1.1 million claims stuck in Court?
This is unclear as there was no specific reference in the judges' ruling as to how the judicial authorities should deal with the frozen cases.
The Courts may wait to see if the OFT challenges bank charges in another way or if they press for a full Competition Commission inquiry.
This should be clearer in December when the OFT will make an announcement but there is a risk that the lower courts may receive directions from the Supreme Court to strike out current claims.
Is there anyway round this by the consumer?
Yes as you may be able to qualify for a refund or a reduction in bank charges if you come under the 'financial hardship' rules.
We have more on this at our Debtwizard guide to financial hardhip rules.
Added 26th November 2009
Debtwizard 5 point guide to bank charges following the Supreme Court ruling
Debtwizard comment
Although I very much support the consumer on this, privately I was quite concerned about how the banks could afford to pay out the refunds in the event of them losing this case. Some campaigners have put this amount to be around the £24bn mark as arguably customers could go back in excess of eight years due to the FSA blanket ban of court claims.
It is common knowledge that the banks receive around £3bn income per year from bank overdraft charges and other current accounts so this is a big sum of money to lose.
Furthermore, many consumers have had their credit ratings marked down through missed payments on loans which had the banks lost could have been seen as unlawful. I dread to think of the ensuing litigation.
There is a small chance that the OFT can still do something and I hope they are successful. I expect their lawyers will be scrutinising every word; we will have to wait for an announcement from the OFT next month as to what they plan to do next.
I believe this is actually the beginning of the end of excessive unauthorised overdraft charges as the banks have already started to cut their fees. There will be more competition from the banks which will in turn bring down fees, but to what level?
There will be the odd bank or two that will still try and get away will high charges but if the customer can change banks then this will be the way forward.
Some will claim that the ruling is a good result for the tax payer, especially from those that do not have bank charges to contend with. I understand this to a point but just spare a thought for those who simply cannot get out of the bank charges trap: they are actually funding your so-called free banking, am I right?
I feel it is wrong to expect those that struggle financially to pay for free banking for the better off. I know you will argue that these people need to manage their money properly but most have triggers in their lives that start the debt cycle off such as redundancy, illness or separation. Along comes those dreaded bank charges and for some there is just no escape and they were pinning their hopes on getting these charges back.
Those with bank charges should be refunded with interest back to July 2001 and they should also be offered help and guidance with their finances.
The time has come when bank customers must stop being seen as easy pickings by these institutions. They have vast amounts on money, some of it public funds, which they use to beat down the honest and hard working consumer with.
Added 26th November 2009
Debtwizard 5 point guide to bank charges following the Supreme Court ruling
