Banks win on overdraft charges

In OFT v Abbey National Plc and Others [2009] UKSC 6, the Supreme Court had to decide not whether the banks’ charges for unauthorised overdrafts were fair but whether the Office of Fair Trading (OFT) could launch an investigation into whether they are fair. Lord Phillips, president of the Supreme Court, and four Supreme Court Justices, ruled unanimously in favour of the banks.

Millions of current account holders who have been waiting to claim back charges will be taken aback at the decision. It follows two years of litigation during which the high court and Court of Appeal have both ruled, in favour of the OFT, that the banks could be investigated for fairness under the Unfair Terms in Consumer Contracts Regulations 1999.

According to Which? Magazine, the average customer claim is about £634. Banks paid out about £560m in refunds before the process was frozen in 2007 pending the result of this case.

Lord Phillips, President of the Supreme Court, said that unarranged overdraft charges are an important part of current account services which the banks provide to customers, and the amount of those charges is not assessable for fairness.

He noted that in the absence of the charges, the banks would not be able to run current accounts profitably without a fee.

He stated that it might be open to question whether it is fair to subsidise some customers whose accounts are always in credit by levies on others who experienced events they did not foresee when they opened their accounts.

He acknowledged that the OFT may yet be able to use other regulations to investigate the charges.

Ed Crosse, finance litigation partner at Osborne Clarke, says: “This is a stunning victory for the banks which will provide greater legal clarity going forward. 

“Many commentators wrote off the banks chances of winning. As the Supreme Court's decision records, however, it remains an option for the OFT to assess the fairness of the charges according to other criteria.”

Tom Morrison, associate, Rollits, says: “The decision has come as a blow to many who were hoping that banks would be made to hand back fees which some think were unfairly charged. 

“It was never a certainty that the OFT would win, but there is no doubt that consumer groups see this as a big setback in the resetting of the relationship between banks and their customers. Given the history of the case and the OFT's view that banks need to treat their customers better, it would be surprising if the OFT lets the matter drop here.”

The OFT said, in a statement, that it was “disappointed” by the decision but was exploring whether it could continue with its planned investigation, and expected to make an announcement on this in December.