FThe Office of Fair Trading (OFT) is taking a case to the High Court to decide whether or not the level of unauthorised overdraft charges made by banks are legal. According to the OFT, tens of thousands of complaints that these charges are unfair have been received by the County Courts and the Financial Ombudsman Service.

The debate considers whether, under current consumer law, it is lawful for banks to charge a penalty for unauthorised overdrafts and ‘bounced cheques’ in excess of the administrative costs needed to process them. In many cases, these penalties can be £30 or more for each transaction which occurs whilst an individual’s bank account is in the red. Consumer groups argue that the actual administrative costs involved are a fraction of the penalties.

As a result of high profile campaigns by consumer groups, thousands of dissatisfied bank customers have been sending their banks letters of complaint demanding refunds. Some banks have settled out of court rather than reveal the actual cost of dealing with overdrafts and bounced cheques.

There have been several cases where the courts have found in favour of the bank which has left the question of bank charges unresolved. The OFT has entered into an agreement with eight leading high street banks to bring a test case to the High Court to resolve the legal issues.

Until the case is settled, decisions on all existing and future claims for refunds are likely to be put on hold. Estimates for when a case might be brought before the High Court range from November 2007 to early spring 2008.

Internet Link:

OFT website