Court of Appeal rules on unfair bank charges

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LONDON - The UK Court of Appeal has ruled that unarranged overdraft charges for personal current accounts can be assessed for fairness by the Office of Fair Trading (OFT).

The Court found that these terms are not part of the core or essential bargain between a consumer and their bank, and so consumers have protection under the Unfair Terms in Consumer Contract Regulations for these terms.

The OFT welcomed the news. In a statement, it said: "This judgement confirms the OFT's long-held interpretation of this important aspect of consumer law, and is one that consumers themselves would identify with. It is also relevant to businesses across the whole economy. We are now analysing the implications of the judgement for our ongoing investigation."

The OFT has already written to the banks who participated in the test case - Abbey National, Barclays Bank, Clydesdale Bank, HSBC Bank, Lloyds Banking Group, Royal Bank of Scotland and Nationwide Building Society - with its provisional view on the fairness of the terms, setting out its concerns that they might be unfair. It expects to reach a final decision on fairness later this year.

The Court of Appeal judges refused to allow the banks to go to the House of Lords, however, the banks can apply directly to the law lords to bring a final appeal on the ruling.

Consumer groups have already urged banks to reimburse an estimated £1 billion in charges and to settle thousands of claims pending a final decision in the courts. However, the ruling may herald the end of free banking for millions of UK customers as the banks will be looking to recoup lost revenue, estimated to be around £2.6 billion a year, from these charges in other ways.

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