In a landmark ruling yesterday, The Supreme Court decided the Office of Fair Trading (OFT) will not have the authority to investigate the fairness of unarranged overdraft charges. The decision is thought to disappoint consumers across the United Kingdom, many of whom have been trying to claim back unauthorised overdraft charges.
The unanimous decision by the five judges of the court yesterday overrules the previous High Court and Court of Appeal judgements over the case. The controversial ruling has lead to many politicians and consumer groups stating their disappointment and calling for changes to the law.
It is estimated that approximately one million people in the United Kingdom had lodged requests for refunds of charges. It now looks likely the majority of these will be turned down unless the consumer can prove that they are in financial hardship.
Banks in the United Kingdom currently have the ability to charge fees on both authorised and unauthorised bank charges. Whereas customers with authorised overdrafts are charged interest on the money they overdraw, customers with unauthorised overdrafts are charged fixed fees and interest on any overdrawn accounts. At present, bank charges can be as much as £35 for consumers who overdraw their bank accounts without permission.
The OFT first stated they would pursue a test case to clarify the law on personal bank account charges in July 2007. The test case was taken against the seven major banks that provide approximately 90% of the United Kingdom’s personal bank accounts. This included Abbey National plc, Barclays Bank plc, Clydesdale Bank plc, HSBC Bank plc, Lloyds Banking Group plc, Royal Bank of Scotland Group plc and Nationwide Building Society.
During their 2008 market study, the OFT discovered that banks earn approximately a third of their account revenues from unauthorised overdraft charges. The report also found unarranged overdraft fees to be difficult for consumers to understand.
The OFT had taken legal action under The Unfair Terms in Consumer Contracts Regulations 1999 (UTCCRs), which aims to protect consumers from unfair terms within contracts. The decision by The Supreme Court was not to decide whether the bank charges for unauthorised overdrafts are unfair, but rather if the OFT could investigate into whether the charges are fair.
A statement was released by The Office of Fair Trading following the ruling to announce they will consider the detail of the judgement before they decide whether to continue their investigation into unarranged overdraft charging terms and plans to make a further statement in December.
Despite this set back, many consumer groups remain optimistic that the battle over overdraft charges is not over. Consumers who do frequently overdraw their accounts have been urged to seek the best offers from banks and building societies and ensure they understand the terms and conditions of their current accounts.
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