Unauthorised overdraft charges
UNAUTHORISED (INFORMAL) OVERDRAFT CHARGES –
TEST CASE UPDATE
On 27th July 2007 the Office of Fair Trading, seven banks and one building society (the Banks) brought a test case to the High Court regarding informal overdraft charges.
On 24th April 2008 the Court issued its judgment on the first part of the test case process. The judgment is available via www.judiciary.gov.uk
Here's a summary of the judgment:
- Informal overdrafts are an essential, real and identifiable service provided by banks for their personal current account customers
- The current charges are not considered to be unenforceable penalties
- Most of the Banks' current terms and conditions (including charges) are in plain and intelligible language
- Terms and conditions relating to informal borrowing charges are assessable for fairness under the Unfair Terms in Consumer Contracts Regulations 1999 (UTCCR) – but Mr Justice Smith emphasised that he had not been asked to rule whether the Banks' charges were fair or not
On 22 and 23 May 2008 a procedural hearing (known as a Case Management Conference) took place. Various next steps in the test case process were decided at the hearing.
Firstly, the Court dealt with the issue of appeals. The Court gave permission to the Banks to appeal April's Court judgment that informal overdraft fees are assessable for fairness under the Unfair Terms in Consumer Contracts Regulations 1999 (“UTCCRs”). The Banks are appealing on this issue as they continue to believe that the fees are fair and that the UTCCRs do not apply to these types of fees. There is limited guidance from case law on whether and how the UTCCRs apply in these circumstances and as the test case process is of considerable public interest, it is important for the issues to be fully tested.
The OFT is not seeking permission to appeal the April judgment.
Secondly, it was confirmed that there will be another hearing where the Court will be asked to consider whether terms and conditions previously used by the Banks are capable of being penalties. A short hearing to decide this took place on 7 to 9 July 2008. We await the outcome
While the Court concluded in April that informal overdraft fees are assessable for fairness, the Judge was explicit in stating that this does not mean that they are unfair. A further hearing will be required in order for the Court to determine the issue of fairness. It is not yet possible to confirm when this hearing will be but the Banks are working closely with the OFT and the Court to bring a conclusion to the test case process as soon as possible.
The FSA has confirmed its continuation of the waiver arrangements. The continuation will be for a further six month period to facilitate the test case process. Customer complaints relating to informal overdraft charges will therefore remain on hold. The Banks will continue to ask County and Sheriff Courts to keep claims relating to informal overdraft charges on hold until the test case process is concluded.
What will happen to customer complaints about unauthorised (informal) overdraft charges?
Most banks and building societies, including The Co-operative Bank and smile, will not be dealing with or resolving customer complaints on informal overdraft charges whilst there is legal uncertainty.
If you do complain about your informal overdraft charges, we will write to tell you that we have received your complaint and that we will record it on your file. When a final decision is reached in the test case, we will contact you as soon as possible to tell you how we will resolve your complaint.
Why are the banks allowed to stop dealing with unauthorised (informal) overdraft charge complaints during the test case?
We applied to the Financial Services Authority (FSA) for a suspension of the normal timetable for dealing with informal overdraft charge complaints.
The FSA decided that, in the circumstances, it was appropriate to grant us a suspension of our obligations under the FSA's complaint handling rules while legal certainty is sought on this issue through the test case. The suspension is subject to a series of conditions designed to protect customers' rights.
All customers who have made a complaint on informal overdraft charges but who have not yet had their complaint resolved will receive a letter when the final decision is reached to explain the position with respect to their complaint.
Can I make a court claim for a refund during the test case?
Yes, but we will apply to the court to put your case on hold while the test case is running. This is because the issues being raised in customer complaints on informal overdraft charges are being considered in the test case.
Can I complain to the Financial Ombudsman Service about my bank charges?
The Financial Ombudsman Service (FOS) has decided not to review complaints while the test case is running. If you do complain to FOS, you will receive a letter explaining that.
I have already accepted an offer from you. Will my claim be revisited?
If you have accepted an offer in 'full and final settlement', we believe it unlikely you would be awarded a further sum even if the test case indicates a potentially larger amount.
I am in financial difficulties – what can I do?
If you are experiencing financial difficulties, come and talk to us – the sooner the better. We work with a number of free advice agencies to help customers who are experiencing problems, and have produced a guide to help you ‘balance the books'.
Where can I find out more?
We will continue to post updates on our website to keep customers informed of progress on the test case.
Alternatively, you can find more information through the following links:
The Financial Services Authority:
www.fsa.gov.uk
The Office of Fair Trading:
www.oft.gov.uk
The Financial Ombudsman Service:
www.financial-ombudsman.org.uk
British Banker's Association
www.bba.org.uk
You can also contact us by calling us on 08457 212 212.
