UK Banks in the dock over 'unfair' fees

LONDON - UK consumer watchdog the Office of Fair Trading (OFT) is urging the High Court to rule that the penalty fees British banks charge customers are unfair under the terms of the Unfair Terms in Consumer Contracts Regulation 1999.

Those disputing the case include banks HBOS, Lloyds TSB, HSBC, Clydesdale Bank, Barclays, Abbey National and the Royal Bank of Scotland (RBS), and building society Nationwide. They argue the legislation does not apply to their charges on unauthorised overdrafts or bounced cheques, and are throwing a lot of legal muscle behind their defence.

Laurence Rabinowitz QC, representing RBS, opened the proceedings by accusing the OFT of partly being to blame for 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 partly 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.

Barclays, represented by Iain Milligan QC, concurred with the RBS defence that anything related to the price of running a current account could not be challenged under consumer regulations, that overdraft services were part and parcel of the bank's arrangements for operating customers' current accounts, and that Barclays' current account terms and conditions were "plain and intelligible".

The other firms are continuing their defence, after which the OFT is expected to reply at length. The hearing is expected to run until mid-February, almosttwo weeks past the initially scheduled eight days.

If the OFT is successful, it could mean the end of free banking, as banks attempt to recoup costs elsewhere.