OFT Launches Test Case On Unauthorised Bank Overdraft Charges
ConsumerWatch / UK Banking Jul 27, 2007 - 10:18 AM GMTBy: Submissions
The OFT will today commence proceedings in the High Court for a declaration on the application of the law in respect of unauthorised overdraft charges.
See questions and answers for test case announcement .
Tens of thousands of complaints that these charges are unfair have been received by the County Courts and the Financial Ombudsman Service. The banks do not accept that the unfairness rules of the Unfair Terms in Consumer Contract Regulations apply. The OFT believes that they do and is seeking to establish this legal principle clearly in the court. The OFT considers that a quick determination of this point of principle will assist in securing a clear and orderly resolution of the fairness of these charges.
The test case complements the ongoing market study into personal current accounts, which addresses wider questions about competition and price transparency in the provision of personal current accounts.
The OFT will continue to work closely with the Financial Ombudsman Service and the Financial Services Authority, in addition to consulting with banks and consumer groups.
NOTES
1. In March 2007 the OFT announced a formal investigation into the fairness of unauthorised overdraft and returned item fees (referred to as 'unauthorised overdraft charges'). This followed on from the OFT's initial review of such charges, where the OFT concluded that it shared the public concern about the level and incidence of bank current account charges, but recognised that applying the general principles set out in 2006 in relation to credit card charges is not straight forward.
2. The other parties to the test case are Abbey National plc, Barclays Bank plc, Clydesdale Bank plc, HBOS plc, HSBC Bank plc, Lloyds TSB Bank plc, Royal Bank of Scotland Group plc, and Nationwide Building Society. Together these current account providers account for about 90% of personal current accounts in the UK. The OFT has entered into an agreement with these current account providers in relation to the litigation process to facilitate an orderly and timely resolution of the legal issues.
3. The OFT continues its UTCCRs investigation into whether the level of charges is fair and will publish its findings and proposed action by the end of the year, as announced in March 2007.
4. If, in the light of the UTCCRs investigation, the OFT decides to take action because it finds the charges to be unfair but is not able to secure voluntary compliance, it will proceed to a second stage court case applying for a ruling that the charges are unfair.
5. In the course of its work on the issue the OFT has liaised closely with the Financial Services Authority and Financial Ombudsman Service and has also held discussions with the main banks. The FSA is announcing today that it is issuing a waiver from its complaints handling rules that apply to unauthorised overdraft charges, following the OFT's decision to initiate a test case.
5. The OFT's market study is taking a holistic look at whether the personal current account market is working well for consumers. In particular it will assess the extent to which consumers help drive competition. The market study is currently in its evidence gathering phase, and the OFT will publish its findings by the end of the year.
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