May 25, 2008 | posted by Pam Atherton in Banking |

High Court Judge,  Mr Justice Andrew Smith, has forced the OFT and eight High Street banks to agree a timetable in the their legal tussle over the fairness of bank overdraft charges.

The judge allowed the banks to appeal against his ruling last month that the OFT has the right to assess  the fairness of unauthorised overdraft charges and their appeal is expected to be heard in September.

But Mr Justice Smith has ordered the OFT to divulge the initial findings of its investigation into the fairness of unauthorised overdraft charges by the end of July.
 
The banks have been keen to oppose regulation of charges for customers who go overdrawn without permission to protect the £2.5-£3bn of income this generates each year.

Following hundreds of thousands claims from customers for refunds of their overdraft charges in the county courts over the last year, the banks agreed to a High Court test case to examine two issues.

The first was whether the OFT is authorised to assess bank charges under the 1998 consumer contract regulations. The second was the fairness of the charges themselves, which the OFT has been investigating since April 2007.
 
The regulator and the banks agreed that if they could not agree on a fair level of charges, the issue would go to the High Court before Christmas for a ruling.

In the meantime, Judge Andrew Smith has ordered that the tens of thousands of unresolved cases before the county courts and the Financial Ombudsman Service must stay on hold.

To date, the banks have paid out £600m in refunds but could be liable for £5bn if the court finds in the OFT’s favour.
 
David Black, principal consultant of banking at Defaqto says: “Whilst it will clearly depend on the level of the [overdraft charges] cap enforced, it will almost certainly result in the current account landscape being changed significantly as the banks seek to make up any lost revenue in other ways.”

But a spokesman for Which? magazine said that 4 in 5 bank customers don’t incur overdraft charges and that 8 out of 10 people  would be willing to switch accounts if some banks introduced fees for in-credit banking.