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

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 MoneySavingExpert.com, 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 moneysupermarket.com, 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 Moneyfacts.co.uk, 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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Banks could charge £2.50 every time we use a cash machine

Banks could charge customers to take out money from a cash machine, campaigners fear.

They believe the banks will introduce new 'rip-off' charges if they lose a long-running court battle this week with the Office of Fair Trading.

It could signal the end of the free banking currently enjoyed by millions whose accounts never go into the red.


One possibility is that customers could be charged to use the 39,000 cash machines in the UK that are free at present.

Industry experts believe a levy of up to £2.50 could be imposed per withdrawal.

Another potential outcome is that banks could force customers to pay a monthly fee to bank with them.

On Wednesday, the Supreme Court is expected to clear the way for a decision that overdraft charges imposed by banks over many years were unfair.

Banks could be forced to pay refunds totalling more than £10billion to customers hit with extortionate penalty charges.

The consumer group Which? estimates that around 12million people have been hit with bank charges since 2001, but about two-thirds have not asked for their money back.

Eddy Weatherill, from the Independent Banking Advisory Service, said yesterday that banks will always 'profiteer where they can'.

He said: 'Banks think they can charge whatever they like - and get away with it. There is no doubt that they will bring in new fees, or higher existing fees, wherever they can.'

Phil Jones, a personal finance campaigner from Which?, said: 'It is like a balloon. When you push in one part, it comes out in another. The banks are consistently finding sneaky ways to make money out of people.'

Which? pointed to latest figures, from the Bank of England showing the average overdraft rate has hit 18.9 per cent.

Last week, Santander, owner of Abbey, introduced a 'fee-free' current account.

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

But it is only available to those who take out, or already have, a mortgage with the bank or one of its new subsidiaries, Bradford & Bingley and Alliance & Leicester.

Experts say other banks will follow suit, which will benefit many customers - but freeze out millions more. continues here

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Bank account sabotaged after customer gives call centre worker a bad rating

It is one of the bugbears of modern life, the distant voice down a crackly line from a call centre somewhere in southern India. 

But George Bates, 23, has more reason to complain than most. Disgruntled by the rejection of an extension of his overdraft because he had only just increased his limit, he gave a less than enthusiastic response in a post-call customer satisfaction survey. 

The next day he found himself locked out of his account with the Abbey bank, his debit card was swallowed by a cash machine, his overdraft facility had been withdrawn and he was down on bank records as a 33-year-old Ugandan divorcée. 

When he complained an Abbey manager revealed that someone had changed his account details and as a result he had to pay £60 in penalties because six direct debits went unpaid. 

The Abbey has now apologised to Mr Bates, who has never been married, let alone divorced, repaid the £60 charges and offered him £200 compensation for his “inconvenience”. 

The bank says that it is investigating the complaint that his account was sabotaged by a call-centre employee in India. Mr Bates originally telephoned the Abbey's call centre to arrange an extra overdraft to cover a couple of unexpected payments. When he called back later to ask for a little more than originally agreed he was told that the bank had a policy of not extending an overdraft twice in one day. 

Mr Bates says the adviser had an Indian accent and the line was so bad that he could hardly understand what he was saying. He claims that the man was “arrogant and rude” and is convinced that he changed his account details out of spite. 

He said: “The phone operator has obviously seen that I've given him bad feedback and decided to change all my details in revenge. I rang up but I couldn't understand a word of what he was saying. He was really unhelpful but he had the cheek to pester me to give him a good rating after the call. 

“When I heard my details had been changed I was terrified that my account had been emptied and I'd never have my money back. His spiteful actions have caused me a massive inconvenience and I've changed banks because I'm scared he could still access my account.” 

Mr Bates claims that the adviser pestered him to give maximum scores of seven in an eight-question automated survey that customers take after a call. He answered the questions with ones and twos, the lowest scores, because he felt that the man had been unhelpful. When he rang the next day to again try to extend his overdraft he was unable to access his account. He visited the Abbey branch in Broadmead, Bristol, where a manager informed him that his account details had been altered.  continues here

Banks threaten to end free banking as £8bn 'stealth charges' are curbed

Banks yesterday threatened an end to free current accounts after they were accused of dirty tricks, ripping off customers and imposing stealth charges.

The warning of the death of free banking came after the Office of Fair Trading criticised practices that earn them £8.3billion a year from the accounts.

The Government watchdog said customers were actually paying an average of £152 a year for banking services in the form of excessive overdraft and penalty charges.

It has warned banks to change how they charge for services.

But they have hit back by threatening monthly charges for basic services if they have to cut fees.

It is feared they will retaliate by introducing fees of between £5 and £20 for a current account.

Industry leaders hint that customers may also face extra charges to use a cash machine, write a cheque or pay a direct debit.

Angela Knight, chief executive of the British Bankers Association, said: 'It is important that this model, which is what customers have asked for - free for their normal banking, does remain.

'We are worried that the OFT seems to be challenging that.

'Do you really want to pay for ATM use, pay for statements, pay for direct debits in this country?'

The OFT yesterday launched what consumer groups called a 'devastating critique' of how banks charge for current accounts.

The biggest earner relates to the fact that banks pay very low or no interest on current account balances. But they invest the money in customers' accounts at much higher rates of interest to make a profit of £4.1billion a year.

The OFT wants banks to give each customer an annual statement showing the value of this lost interest. Separately, they make £2.6billion a year from excessive overdraft charges, which have risen by 17 per cent above inflation in four years.

Four million people are paying more than £200 a year in overdraft charges, with 1.4 million of them handing over more than £500.

The watchdog made it clear that profit margins on overdraft penalty fees, which can be £38 for bouncing a payment, are excessive.

It said the nation was overdrawn by an average of £680million a day in 2006. However, bank fees and interest on this sum amounted to £1.5billion, a return of 220 per cent.

The OFT identified dirty tricks where banks have secretly pushed up penalty charges to subsidise other products brought in to attract new customers.

It said finance industry claims that they look after customers by providing 'free banking' were bogus. continues here

Global Finance Leaders Warn of Risk From U.S. Housing Woe

TOKYO — Finance leaders from the world’s wealthiest nations warned Saturday that global economic woes could get worse from the slump in the American housing market, but offered few specific remedies.

In a statement issued after meetings in Tokyo, the finance ministers and central bank chiefs of the Group of 7 industrialized nations offered a more pessimistic view of the global economy than they did four months ago, after their last meeting. They also said the fundamental elements of the global economy remained strong and the United States was likely to avoid recession.

The finance leaders from the United States, Japan, Germany, France, Britain, Italy and Canada warned that global growth could continue to slow as a result of the credit crisis set off by America’s subprime mortgage problems. The statement also pledged joint action to calm shaken financial markets, but it was short on specifics, especially on steps to rekindle growth.

It did not press member nations to pick up the slack from the slowing United States economy by stimulating their own domestic growth. It also did not contain any dramatic joint action, like a coordinated cut in interest rates, as some had hoped.

“The world confronts a more challenging and uncertain environment than when we met last October,” the statement said. “We will continue to watch developments closely and will continue to take appropriate actions, individually and collectively, in order to secure stability and growth in our economies.”continues here

'Greedy' banks push up mortgage rates
Edmund Conway and Harry Wallop

Banks and building societies have been accused of profiteering after official figures showed that they had raised millions of their customers' mortgage bills before an expected cut in interest rates by the Bank of England.

While a cut today should bring some respite for struggling home owners, analysis by The Daily Telegraph shows how banks have not only failed to pass on the previous cut, they have actually raised the average mortgage rate.

Moreover, financial experts warned that even if rates continued to fall this year, the majority of the 11.8 million mortgage holders in Britain were unlikely to see much benefit.

In the past few weeks 10 mortgage lenders, including the Royal Bank of Scotland, Alliance & Leicester and the country's biggest building society, the Nationwide, have increased some of their rates, despite the Bank cutting rates from 5.75 per cent to 5.5 in December.

Bank of England data shows that the average mortgage rate has been inflated. When interest rates were previously 5.5 per cent - in May last year - the average mortgage rate was 5.66 per cent but when rates moved back down to that level in December the average was 5.93.

For someone on a typical interest-only home loan of £150,000, this meant an increase of £33.75 on their monthly bill to £741.25.

Eddie Weatherill, the chairman of the campaign group Independent Banking Advisory Service, said: "Over the last decade the banks have used interest rate changes to massage their own rates......Article conts (-)