Bank charges caught by consumer protection law, rules High Court

The High Court said that the OFT was permitted to investigate banks under the Unfair Terms in Consumer Contracts (UTCC) Regulations. These place a higher burden on businesses to act fairly than contract rules governing business-to-business dealings.

The OFT asked the High Court to rule that it could assess the fairness of charges under the Regulations and it has agreed. An OFT decision is expected in July.

Many customers have complained about high charges for going over overdraft limits on their bank accounts, and individual customers have recovered hundreds of millions of pounds from banks in court actions.

The OFT had also asked the Court to decide whether or not banks' contracts were in "plain intelligible language" or not so that consumers could understand them. The Court said that the contracts were almost entirely in plain intelligible language.

The OFT had also asked the Court to decide whether bank charges were 'penalties' under common law but the Court said they were not, closing off an alternative course of action against banks to the UTCC Regulations.

The Regulations govern terms within consumer contracts that have not been specifically negotiated between the two parties. They render void any term found to be unfair.

Individuals can take challenges to terms they believe are unfair, or the OFT can investigate the companies behind contracts with terms it believes are unfair.

The Financial Services Authority has given banks permission to stop dealing with individual complaints until the OFT resolves its case over the bank charges, and many county courts in England have stopped processing claims on that basis, say press reports.

Many banks levy automatic charges of £25 to £35 every time a customer goes beyond their overdraft limit, and it is these charges that are opposed by consumers.

An OFT statement said that it had launched its investigation because it "shared the public concern about the level and incidence of bank current account charges".

"We are continuing our investigation into the fairness of these terms and will consider our position after reviewing the detail of this judgment," said the statement.

The ruling came in a test case against banks making up 90% of the market for current accounts in the UK. The banks are Abbey National; Barclays Bank; Clydesdale Bank; HBOS; HSBC; Lloyds TSB; Royal Bank of Scotland Group; and Nationwide Building Society.