Bank charges: Britain's biggest lenders avoid repaying £20bn in 'unfair' charges after shock Supreme Court decision

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Britain's high street banks today avoided having to repay billions in 'unfair' overdraft charges to their customers after the nation's highest court ruled in their favour.

The Supreme Court overturned earlier court rulings that allowed the Office of Fair Trading to investigate the fairness of charges for unauthorised overdrafts.

If the banks had lost today's test case it would have cost them £2.6billion a year in lost revenue.

And they would have been forced to repay up to around £20billion to the eight million people who have been hit with the charges since 2001.

The surprise ruling will have come as a terrible shock to the 1.2million customers who have had their claims against the banks frozen for the past two years ahead of today's test case.

Campaigners had claimed that the cost to a bank of a customer going into an unauthorised overdraft was less than £2.50 - while banks were charging up to £35 if they went over their agreed overdraft limit.

But, explaining today's ruling, the Supreme Court's president Lord Phillips said that bank customers agreed to pay overdraft charges as part of the price of having a current account.

The banks had warned that losing their appeal case against the OFT could herald the end of free banking in the UK.

Money Mail and sister website This is Money have been campaigning for fair play on fees since 2006.

Which? chief executive, Peter Vicary-Smith, said that the ruling meant that banks now had 'no excuse' to introduce any further charges.

He said: 'This is a bitter blow for the millions of people who have been patiently waiting to get their bank charges back.

'Not only does it give banks licence to charge what they like for unauthorised overdrafts, but it could have ramifications for other areas of personal finance.

'The banks have done everything possible to frustrate the OFT throughout this process.

'The OFT and the Government should now explore other avenues it can pursue to get a fair deal for consumers.'

The Supreme Court accepted the banks' argument that free banking on current accounts was only made possible by charging customers who went into an unarranged overdraft.

Around 45 per cent of current accounts already charge a monthly fee of some kind, up from just a third in 2006.

All banks have already changed the way they charge customers who go overdrawn.

Some banks have introduced tiered charges, while others have gone to daily charges, flat monthly fees or lower one-off fees.

Lord Walker, one of the five Justices of the Supreme Court who heard the case, pointed out that the outcome of the appeal 'may cause disappointment and indeed dismay to a very large number of bank customers who feel that they have been subjected to unfairly high charges in respect of unauthorised overdrafts'.

But he said that as Lord Phillips had explained it was not the end of the matter and Parliament 'may wish to consider the matter further'.

Lady Hale said: 'The banks may not be the most popular institutions in the country at present, but that does not mean that their methods of charging for retail banking services are necessarily unfair when reviewed as a whole.'

The test case to decide the legal issues thrown up by the dispute was brought jointly by the OFT and Abbey, Barclays, Clydesdale, Halifax Bank of Scotland and Lloyds TSB, which are now part of the same group, HSBC, Royal Bank of Scotland Group and Nationwide Building Society.

Today the City watchdog Financial Services Authority lifted a waiver that had put all bank charge complaints on hold.

In the next few weeks banks will write to an estimated 1.2 million customers whose complaints were on ice.

But because the banks always said they thought charges were fair it seems likely the vast majority of complaints will now be rejected as a result.

Martin Lewis, creator of, said: 'After the shock result, it looked like the door had been slammed shut, but it seems there may yet be a foot shoved in it.

'A clause buried deep within the judgment says this is a narrow reading of the case, and it doesn't stop the OFT looking at fairness using other means.

'It also may not impact the court cases of individuals who have already started reclaiming.

'This is early days so it's still a very grey area, but it does offer a glimmer of hope.'

He added that powers under the new Financial Services Bill, which is currently going through Parliament, should ensure future charges are fair.

Angela Knight, chief executive of the British Bankers' Association, said: 'The thing that is important about today's outcome is that there is clarity now in the law.'

She added that she did not expect the ruling to have an impact on the availability of free banking.

She said: 'I'm expecting that the banks will offer a variety of different types of account and charging structures.

'There will be more choice for individuals and that is in the interests of all consumers.

'The banks do recognise the concerns of their customers and the wider concerns that have been raise by this case on unauthorised overdraft charges and we want to sort out this issue.'

Kevin Mountford, head of banking at, said: 'There is no doubt that this is a setback for the OFT and for the million or so customers who are trying to reclaim their bank charges.

'We expect the OFT to continue to try and press for a system where the costs of running the current account system are spread more fairly across all customers.

'In truth banks have already started to respond to this - for example, we've already seen a big move from banks towards so-called packaged accounts where you pay a monthly fee but get added benefits such as travel insurance thrown in.

'We expect this trend to continue and, in return for fairer overdraft charges, banks could introduce transaction fees, or monthly and annual fees.'

Malcolm Hurlston, chairman of the Consumer Credit Counselling Service, said: 'It is a scandal that the costs of banking fall unfairly on people in debt and the improvident and (we) call on banks to charge more transparently.'

The OFT said it would consider the judgment before deciding what to do next.

It said: 'The OFT is disappointed by today's Supreme Court judgment, which overturns previous High Court and Court of Appeal rulings that unarranged overdraft charging terms can be assessed in full for fairness. It will also be disappointing for many consumers.

'The OFT will now consider the detail of this judgment before it makes a decision on whether or not to continue its investigation into unarranged overdraft charging terms.

'It will also explore with others the implications for consumers and for existing and future legislation and regulation. The OFT expects to make a further announcement in December.

'The OFT set out its concerns in relation to unarranged overdraft charges as part of its 2008 market study.

'This found that banks earn around a third of their retail revenues from unarranged overdraft charges that are difficult to understand, not transparent, and not subject to effective consumer control.

'The OFT will be seeking discussions with banks, consumer organisations, the FSA and the Government in the light of this judgment.'

The decision comes on the back of a move last week by Santander, the Spanish banking group which owns Abbey, to launch a fee-free current account.

The new Zero Current Account has no overdraft penalty fees, no fees for bounced payments, no charges for taking out cash overseas and no foreign exchange fees.

Michelle Slade, spokeswoman for, said: 'The shock decision by the Supreme Court is going to leave some consumers even more disillusioned with banks. continues here

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