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OFT gets green light to rule on bank charges

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Date: Thursday 24 Apr 2008

LONDON (ShareCast) - Caps on bank charges for Britain's high street banks moved nearer after a high court ruled that the Office of Fair Trading could investigate whether the current levels of bank charges are fair.

Mr Justice Andrew Smith ruled in favour of the OFT in a test case, stating that it can apply consumer contract regulations to decide if bank overdraft charges are fair or not.

The ruling is not a final judgement and Justice Smith added that it did not necessarily mean the charges are unfair, but it gives the OFT leeway to begin its overview immediately with an assessment expected in July, which will then go to another high court hearing.

Banks charge up to £39 for going overdrawn at present and have faced a deluge of claims from customers saying they have been overcharged. Many of these were pending the outcome of today's test case and will remain on hold until the banks decide whether to appeal today's ruling. That must be lodged by 22 May.

Last year, the OFT suggested banks charge consumers more for unauthorised overdrafts than it costs them and that the associated charges were 'disproportionate' to the amount borrowed.

The banks are said to make about £3.5bn annually from charges, but even if they suffer a defeat analysts expect any lost revenue to be made up through ending arrangements such as free banking for customers in credit.