Bank charges - Test case

30 December 2009 update

Office of Fair Trading (OFT) announcement

After detailed consideration of the judgment and of the various options available to it, the OFT has concluded that any investigation it were to continue into the fairness of current unarranged overdraft charging terms under the Unfair Terms in Consumer Contract Regulations would have a very limited scope and low prospects of success. Given this, it has decided against taking forward such an investigation.

For full details of the OFT announcement please visit their website following the link provided below.

25 November 2009 Update

Seven banks and Nationwide Building Society were engaged in a court case with the Office of Fair Trading (OFT) to decide on the legality of unauthorised overdraft charges. This test case was started so that the courts’ decision would clarify the law in this area.

The Supreme Court delivered its judgement on 25th November 2009 and ruled that unauthorised overdraft charges are not able to be assessed for fairness on the basis of cost, as these were part of the price paid by the customer for the banking service provided.

Case background

The court was asked to decide whether the banks' and Nationwide’s terms and conditions relating to unarranged overdraft charges were capable of being assessed for fairness and capable of amounting to penalties at common law.

On 24 April 2008, the High Court issued its judgement on the first stage of the test case process. In that preliminary ruling the judge ruled that the charges were not penalties. Subsequent judgements dealt with the banks’ historic terms, and the issue of the test for fairness.

The current position

The Supreme Court’s ruling means that unauthorised overdraft charges cannot be assessed for fairness of cost under the Unfair Terms in Consumer Contract Regulations.

What this means for existing complaints

The Financial Services Authority (FSA) has confirmed that customer complaints relating to this issue are no longer on hold. These complaints will therefore now be dealt with in accordance with our normal complaint handling rules. There is therefore no need for those customers to take any further action now.