Overdraft bank charges court case update

On 27 July 2007, the Office of Fair Trading (OFT), 7 UK banks (including HBOS) and Nationwide Building Society, started a court case to decide on the legality of unarranged overdraft charges.

The case has been called a "test case" because the decision will clarify the law in this area. It is likely to apply to all current and new claims against current account providers about unarranged overdraft charges.

We believe that unarranged overdraft fees are fair, they reflect the service customers enjoy and that legal certainty over unarranged overdraft charges is in the interests of all concerned.

The first step in this process was a trial of certain 'preliminary' issues in relation to the terms and conditions used by the banks at that time, which concluded on 8 February 2008.

On 24 April 2008, the Court issued its judgment on the first stage of the test case process.  It decided that the banks' current charges cannot be penalties, but that they can be assessed for fairness under the Unfair Terms in Consumer Contract Regulations 1999 ("UTCCRs"). The banks appealed this first stage judgment at a hearing which concluded on 5 November 2008.  The judgment is awaited.

On 7 to 9 July 2008, a further hearing took place where the Court was asked to consider whether the banks' historic charges are capable of being penalties and whether they are assessable for fairness under the UTCCRs. 

On 8 October 2008 the Court issued its judgment on this second stage of the test case process.  The Court decided that Halifax and Bank of Scotland's historic charges cannot be penalties.  However, the Court also decided that the banks' historic charges can be assessed for fairness under the UTCCRs - the banks intend to appeal this latter decision.

Further Court hearings will be required before the test case process is concluded.

As previously agreed with the FSA and the Financial Ombudsman Service, customer complaints relating to unarranged overdraft charges will currently remain on hold.  The Banks will continue to ask County (England & Wales) and Sheriff (Scotland) Courts to keep cases relating to unarranged overdraft charges on hold until the test case process is concluded.

For further information, please see our overdraft charges Q&As.