Today, at a stroke, Lord Philips shocked those campaigning for more fairness and transparency in respect of overdraft charges. After hearing evidence from both banks and consumer campaigners, he gave the judgment of the new Supreme Court. This overturned rulings of lower courts allowing investigations by the Office of Fair Trading into the fairness of the charges that banks make for unauthorised overdrafts.
 
It is estimated that these charges provide annual income of over £2.6 billion for the banks.
 
The Court of Appeal had previously interpreted the appropriate regulations so as to prevent the OFT investigating the issue of fairness and reasonableness in respect of "core terms". However, the Court of Appeal found that the charges that banks make for unauthorised overdrafts were not "core terms". This allowed the OFT to investigate whether such charges were fair and reasonable.
 
Unfortunately for customers, the Supreme Court disagreed. Whilst it accepted that the OFT could not investigate core terms, it concluded that the charges that banks make for unauthorised overdrafts were core terms. As such, the OFT could not use these regulations to investigate their fairness.
 
The Supreme Court has not closed the door completely on the OFT. Lord Philips left the door open by saying "It may still be open to the OFT to assess the fairness of the charges by other criteria". Previously, the OFT had indicated that it would continue its action against the banks even if they lost this case.
 
The banks fear that they would face a massive wave of claims from customers if they lost the case. These claims could go beyond mere claims for refunds given the potential for personal and business distress, far beyond the mere payment of cash.
 
There is now considerable uncertainty as to what will happen next. The banks have already settled some claims, although this has been done without any admission of liability on a "goodwill basis". It is likely that such payments can be retained.
 
However, since the middle of 2007, any new claims started in the courts have been adjourned pending the result of this case.  The judgment of the Supreme Court, delivered in less than two minutes, did not give any consideration to the cases currently adjourned. These may now either be dismissed or further adjourned if the OFT launches an alternative attack on the overdraft charging structure of the banks.

The contents of this article are for the purposes of general awareness only. They do not purport to constitute legal or professional advice. The law may have changed since this article was published. Readers should not act on the basis of the information included and should take appropriate professional advice upon their own particular circumstances.

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