The phoney war is finally over!
The Office of Fair Trading is taking on eight banks in court to settle the issue of whether current account penalty charges are fair.
The test case beginning tomorrow aims to resolve the uncertainty over bank penalty charges, which sparked a huge consumer rebellion last year; something that most of you will remember!
The consumer revolt over bank charges grew quickly last year, with millions of you sending complaint letters to your banks, local courts getting clogged with many of you demanding refunds, Tom Brennan heading up the battle against the banks and and some financial institutions saying their profits would be dented as a many of you reclaimed your fees.
It's fairly clear that billions of pounds are at stake over this matter. According to the OFT, the banks collectively receive up to £3.5billion in unauthorised overdraft fees each year...
...that's the equivalent of about £10 million a day!
Is it any wonder that they might be annoyed if they can't continue to make that kind of money through penalty charges?
The case is expected to last 8 to 10 days, with the judge's decision not likely until in April or May.
A couple of things that you have to bear in mind about the test case are that:
- The banks will almost certainly appeal if the judge finds against them, and the OFT may well do the same if it loses.
- The case could be taken to the House of Lords or even to Europe.
If the
Office of Fair Trading (OFT) wins, billions of pounds' worth of charges for unauthorized overdrafts and bounced cheques could be refunded to us all.
However, before we all do a little dance of joy, we have to realize that it might also mean the end of free banking!
If the banks come out on top, millions of us will continue to be hit with excessive and unfair fees.
As we highlighted before, in April last year, NatWest decided to pay a record £35,987 to one customer, a Norfolk businessman, rather than face him in court, where it would have had to justify its fees.
But there have also been cases where county court judges have ruled in favour of the banks, which have confused the issue even further!
End of free banking?
It was agreed last year that decisions on all customer claims for refunds would be put on hold until the outcome of the case.
As a result, thousands of your claims are on hold with your bank, the financial ombudsman or the courts, while the law is clarified. However, campaigners have urged us to continue lodging our complaints with the banks.
The OFT has dismissed suggestions that current account holders could face charges averaging £300 a year if banks are forced to give up their controversial fees.
The British Bankers' Association has claimed that free banking could disappear if the courts ruled in the OFT's favour, warning that its members "could follow patterns abroad where banks charge for transactions such as ATM usage, direct debits and standing orders, in addition to an annual fee".
The banks say that they need some way of controlling customers who go into the red but also privately admit they should have treated customers going a few pounds overdrawn better, and also that they failed to see the consumer revolt coming. You bet they did!
Heads I win, tails you lose?
Fool.co.uk commented on the test case taking place, with David Kuo, Head of Personal Finance saying:
"The test case brought by the OFT against seven banks and one building society is supposed to bring an end to the disputes between customers and their banks over penal charges when current-account holders go overdrawn without authorisation.
"However, bank customers may not benefit nearly as much as they think if the OFT wins its arguments in court. Prior to the court case, disagreements over bank changes were handled by banks on a case-by-case basis. In most instances, refunds were offered in full if customers pressed their banks with the threat of legal action.
"However, a win by the OFT could result in banks refunding only the difference between charges set by the regulator and the fees in dispute. This is likely to see bank customers being offered lower levels of compensation.
"That however, may be preferable to a win by the banks because they will then be allowed to charge whatever they want if customers go overdrawn without prior agreement. "Fool.co.uk therefore urges bank customers to pay close attention to their finances. As far as banks are concerned, the outcome of the court case may be one of heads I win, tails you lose. But vigilant customers can take proactive steps to ensure that banks never win regardless of which side the coin falls."
So, the next few weeks could be very interesting as we wait to see what happens with penalty charges, and maybe, the future of British banking! Source: © Fool.co.uk 2008