The Office of Fair Trading officially drops its battle against banks' unfair overdraft charges


The 22nd December 2009 was indeed a bleak midwinter day for the thousands of bank customers who have been hit by unauthorised bank overdraft charges.

Mainly because The Office of Fair Trading (OFT) abandoned its legal challenge against banks which levy extortionate unauthorised overdraft charges on their customers. It means the banks will be able to keep up to £10billlion in overdraft charges which have hit millions of customers – some of whom have had to pay hundreds of pounds for being just a few pence over their overdraft limit.

In fact bank customers who stray into an unauthorised overdraft have been charged up to £35.00 for each bounced payment – when the cost to the bank is often as little as £2.50.

These unfair overdraft charges are thought to generate up to £2.6billion of revenue each year for the banks which they then use to subsidise free banking for other customers – the banks are thought to earn around a third of their revenues for personal current accounts from unauthorised overdraft charges. It is thought that the vast majority of people affected are students and pensioners being forced to pay huge amounts of money after inadvertently slipping into an unauthorised overdraft.

And when thousands of bank customers hit by these unauthorised overdraft charges tried to claim refunds, the OFT at first agreed that the bank charges were unfair. One national newspaper has been running a campaign since February 2006 for customers to be given refunds on unfair bank charges.

Even the High Court and Appeal Court agreed with the OFT and a consumer campaign on the issue of unfair bank charges which led to hundreds of thousands of complaints almost swamping the UK legal system.

However the Supreme Court made a shock ruling at the end of November that charges for exceeding an overdraft limit do not come under the OFT's jurisdiction, which was the first hurdle for bank customers trying to claim refunds on money charged for going overdrawn.

Martin Lewis of said "We may see some of the poorest individuals needing to personally fight some of the country's biggest corporations."

"We believe there are regulations that could allow........these laws to put the burden of proof on banks to prove fairness."

The Government has already indicated that it will take measures to ensure that the system of unauthorised overdraft charges is made fairer to bank customers who go overdrawn by accident.

However this is of little encouragement to the million plus people who have been overcharged by banks and who have demanded refunds.

The Supreme Court judges ruled that overdraft charges are part of the price bank customers agree to pay for the package of services offered by their bank.

But still the OFT’s decision not to pursue its claim has been described as a "huge blow" for consumers. Philip Cullum of Consumer Focus said "Consumer trust in banks is at an all-time low. This decision will add to the public frustration towards the banking sector."

Shadow Treasury Minister Mark Hoban added "Given the uncertainty about the fairness of charges for unauthorised overdrafts, we urge the OFT to use other avenues to ensure a fair deal for consumers."

Lib Dem leader Nick Clegg pledged "We will continue the fight for bank charges in Parliament and push for a change in the law if necessary so that High Street banks cannot keep ripping off their customers."

However, proposed new laws in the Financial Services Bill may still give groups of bank customers the right to bring court action against their banks to reclaim bank charges. Where legal action has been started and frozen, customers overcharged by banks may now have their legal action decided by County Court Judges.

This article is for information purposes as we cannot assist with unfair bank charge claims.

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