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The banks are not optimistic

Banks Already in ‘Defeat’ Mode

24-April-2008, Writes Dan Drage dan.drage@consumerchoices.co.uk

With the High Court test case about overdraft charges due to conclude today, banks are bracing themselves for the biggest series of refunds in their history.

It's estimated banks generate a total of £3.5 billion a year from the levying of unauthorised overdraft fees. Should they lose this test case, then the advent of annual or monthly fees for account holders in credit could become a tangible possibility.

The OFT first agreed last July, with seven banks and the Nationwide building society, to stage the test case to decide if it had the power under consumer contract regulations to regulate overdraft charges. If the OFT wins, it is then expected to decide that bank charges are too high.

There are three possible outcomes to this case:

• An outright win for the OFT, resulting in all the banks terms and conditions being scrutinised for fairness.


• An outright win for banks, meaning their terms and conditions are exempt from the OFT’s microscope.


• A balance, whereby some banking practices may be investigated by the OFT, but not all.

The case itself will not decide whether bank charges are fair not, the proceeding investigation by the OFT would determine this. A positive verdict for the OFT in this test case will afford them to right to conduct an exhaustive investigation into the fairness of overdraft fees.

Chris Eagle, Commercial Manager at Credit Choices, still can’t predict a winner:

‘The verdict is to be given earlier than anticipated, which points to a landslide victory for either the OFT or the banks. A balanced verdict is unlikely. Should the banks lose, then they’ll have to find an alternative source for the annual revenue they will miss out on. Essentially, the days of free banking will be well and truly over.’

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