Most of the UK’s largest retail banks are set to appeal against a recent court ruling on overdraft charges in a move that could result in years of litigation before the issue is resolved.
The Office of Fair Trading brought the case against eight major retail banks following claims for compensation from hundreds of thousands of bank customers about overdraft charges for bounced cheques and unauthorised overdrafts which could be as much as £30 per item.
Many complainants succeeded in winning compensation in the county courts but the deluge of cases brought chaos to the legal system and because county court judgements do not set a legal precedent, each case had to be heard on its own merits.
Eight high street banks, including HSBC, Barclays and Royal Bank of Scotland, will seek permission tomorrow to appeal against the recent High Court judgement that overdraft charges are subject to unfair consumer contract regulations.
If the High Court judgement is upheld, the OFT would have the right to impose a limit on banks’ overdraft fees. To date, the OFT has not said what it would regard as a fair level of charges, but in 2006, it capped late credit card payment charges at £12.
Industry experts believe that a similar cap on overdraft charges would result in the loss of £10bn a year in revenue and that banks might seek to recoup this by charging customers for in-credit banking and other services.
Consumer groups, such as Which? magazine have argued that the overdraft charges levied by the banks are excessive, given that the cost of dealing with bounced cheques and unauthorised overdrafts is around £4 per item.
Anyone who has an existing compensation claim on hold will have to await the outcome of the litigation.
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