Bank Customers Stunned by Supreme Court Ruling on Unfair Overdraft Charges

After fighting what it believed to be unfair overdraft charges from banks, the UK’s Office of Fair Trading (OFT) has lost its two year court battle against seven major banks and one building society. The case had begun in lower courts, but after appeals by the financial giants, landed in the Supreme Court where the five most senior judges in Britain ruled that the OFT does not have the power nor authority to monitor banks for unfair charges. As a result, many customers expecting refunds of wrongly applied and excessive charges will get nothing back, the bad news coming at a time when many had been looking forward to having their money returned in time for the upcoming holiday season. A large percentage of those expecting the return of these fees will be turning to Individual Voluntary Arrangements and Debt Management Programmes as a way to get back on their feet financially.

The ruling stunned both legal and financial experts who had no doubt that the Supreme Court would rule in favour of the OFT rather than the banks. In fact, in a previous ruling, the banks had been told not to bother taking their appeal to the Supreme Court because there was almost no chance that they would succeed due to widespread disapproval from consumer advocacy groups working to help a huge number of UK consumers already struggling under massive loads of debt.

The OFT had sought to monitor these charges after customers began reporting fees ranging from £20 to £50 for each accidental overcharge to their accounts, even if those accidents were only a few pounds more than their account’s balance. In particular, consumer advocates felt that the fees were designed to target lower income customers who are already financially at risk and that this made the bank’s practice look eerily similar to predatory lending, a greatly disapproved of practice in Britain. Prior to taking the case all the way to the UK’s highest court, the OFT had won two cases in both the High Court and the Court of Appeal, exactly as experts had predicted.

The OFT had expressed concerns that the flagrantly high overdraft charges were unfair and could be considered unauthorised charges since they were subject to changes in price, without written or verbal customer consent, at the whims of the banks themselves. However, the banks considered the terms to be part of the contract customers signed when opening an account and alleged that the overdraft charges were needed to avoid having to charge fees for other services given to customers with more money in their accounts.

Financial and legal experts remain greatly puzzled as to why the judges of the highest court in the land ruled in the manner that they did after the previous rulings by the lower courts. The judges did issue a brief statement that the OFT has interpreted to mean that the grounds of their case was too narrow in scope to be effective at allowing them the power to monitor the banks fees to its customers. In other words, the Supreme Court feels the OFT, an official government body, does not have the right to monitor banks in an effort to protect financially vulnerable consumers from large lending institutions – at this time. The OFT had intended to investigate the fairness of the charges under the Unfair Terms in Consumer Contracts Regulations 1999, but have been told that this will not be considered possible under the law as it stands now. The OFT was also told not to pursue the case in the courts of Europe and to keep it within the UK.

The defendants in the case that the OFT brought were one building society and seven banks, including HSBC, Lloyds TSB, Nationwide, Clydesdale Bank, HBOS, Barclays, Abbey, and the Royal Bank of Scotland Group. All of these lenders had claims pending against them by a staggering number of customers, but all of those claims were frozen by the Financial Services Authority pending the Supreme Court’s verdict.

This means that customers waiting to get their fees refunded will now likely never see a penny returned to them. Had the ruling gone in favour of the OFT, the banks were facing nearly £20 billion in presumably unfair overdraft charges that they would have had to give back to customers. This would have been quite a blow struck to an already teetering financial sector, but also a major boon for consumers struggling with historically high levels of debt themselves.

The Treasury has promised to more aggressively pursue lending institutions that insist on excessive charges, going so far as to state that they intend to push forward legislation to cap overdraft charges if the banks and building societies will not limit the charges on their own. While this may help future customers of the lenders, it will unfortunately leave all those who have been overcharged up until now with zero compensation.

Many people are curious about what has happened during the past twelve months that could possibly have led to this Supreme Court decision. Over the past two years, despite the appeals by the banking institution, legal experts had been positive that the OFT would be clear to return the overdraft charges to customers, especially if the case made it to Britain’s highest court. However, during this time the government has bought up 43% of HOBOS and 84% of the Royal Bank of Scotland, two powerful UK banks. Adding to this the fact that the government recently announced that it secretly injected 62 billion pounds into both of these banks, could there be a conspiracy in play or is it simply coincidence that the government was facing a 20 billion pound loss if the OFT had gotten its way?