House of Lords to Rule on ‘Unfair’ Overdraft Fees.

Submitted by debt free editor on Tue, 23/06/2009 - 14:03

Millions of bank customers could be in line for refunds on unauthorised overdraft charges, as the Office of Fair Trading (OFT) goes to the House of Lords today to defend an appeal by a number of UK banks.

The UK’s main banks are appealing to five Law Lords after an earlier ruling that the OFT could decide on whether bank charges were fair or not, was upheld.

The banks are appealing as they maintain that the charges are not only fair, but also perfectly legal.

Approximately one million customers are awaiting a decision to see if they can reclaim their bank charges. The OFT estimated that the banks make £3.5 billion from bank charges each year, so the ruling from the House of Lords is highly anticipated. A successful OFT case could lead to billions of pounds being refunded and could be backdated by as much as six years.

Appeals made through the courts or the Financial Ombudsman Service have been on hold since July 2007 when the case began.  Before July 2007, it was approximated that banks had refunded approximately £800 million in bank charges.  The campaigners Legal Beagles have estimated that 65,000 cases are currently on hold.  

If the OFT wins the case, it will determine their position of authority in monitoring unfair charges. The bigger issue however, is determining the level of charges that the OFT consider fair.

During the case, a number of banks have started clarifying their charges and also introducing more managed bank accounts, where a monthly fee is charged but there are no overdraft fees.  

If the Lords rule in favour of the OFT then it may be that banks discard the current fee structure and introduce more managed bank accounts instead. This could help customers with their budget planning as there would be no unauthorised fees to worry about.

If the OFT case is successful then the banks can still choose to take their case to the European courts, so it may be a long way from over. Customers are still encouraged by the OFT to continue submitting claims for bank charges so that they can be dealt with once the case is over.