OFT tackles unfair bank charges

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LONDON – The Office of Fair Trading (OFT) kicked off its test case against unfair bank charges on Wednesday (January 16) at the International Dispute Resolution Centre. The OFT is attempting to prove that banks’ penalty charges are unfair under the terms of the Unfair Terms in Consumer Contracts Regulation 1999.

The banks disputing the case are HBOS, Lloyds TSB, HSBC, Clydesdale Bank, Barclays, Abbey National and the Royal Bank of Scotland (RBS), and one building society, Nationwide. They have thrown a lot of legal muscle behind their defence that ‘unfairness’ in the legislation does not apply to their charges on unauthorised overdrafts or bounced cheques.

Representation for RBS, Laurence Rabinowitz QC, opened the proceedings by partly accusing the OFT of opening a floodgate to consumer claims against penalty fees that, according to research released in July last year by Credit Suisse UK, cost banks as much as £200 million.

He said this was in part due to “ill-judged” comments by the OFT in its ruling on credit card charges in 2006, which said that credit card providers were charging unfair fees for late and missed payments, and compared them with charges imposed on current accounts such as those for unauthorised overdrafts.

RBS is continuing its defence. The other banks will present their own cases from next week, followed by the OFT. The hearing is expected to run for three weeks.

Should the OFT be successful, it could mean the end of free banking, as banks attempt to recoup costs from elsewhere.

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