As two of the UK’s largest banks - RBOS and HBOS - suffer the humiliation of part-nationalisation today, they can at least take comfort in the fact that retail banks have won a small concession in their long running battle with consumers over overdraft charges.
The High Court last week backed most lenders’ arguments that the fees they have levied over the last few years - when customers exceeded their authorised overdraft limits or bounced cheques - could not be deemed to be unlawful penalty charges.
While this is only a small win by the banks, it will be welcome news as many of them battle for their very survival. However, this is only round two in a long running fight.
Later this month, eight of the largest high street lenders, including HSBC, Barclays and Royal Bank of Scotland, will appeal against an earlier High Court ruling that current overdraft charges are subject to the Unfair Terms in Consumer Contract regulations.
Tens of thousands of refund claims for overdaft charges have been held in abeyance at county courts since the Ofice of Fair Trading and the banks agreed last year to bring a test case to clarify the legality of these fees.
Overdraft charges can be as high as £35 per item, generating billions of pounds of income for the banks. The OFT, meanwhile, has already decided that the current level of charges is unfair and is in ongoing negotiations with the banks on this issue.
In 2006, the OFT capped the fees which banks can charge for late credit card payments at £12 - a level which may be an indication of the cap which it could impose for overdraft charges.
The High Court is expected to press on with the second stage of the proceedings which will assess the fairness of overdraft fees, even while the banks appeal against the first judgement.
Defaqto banking consultant, David Black, says:”These appeals and counter appeals will run and run for years, but the end result is likely to be an end to free in-credit banking.”
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