OFT seeks bank charge compromise

by Gill Montia

Story link: OFT seeks bank charge compromise

The Office of Fair Trading (OFT) has reported that it is reconsidering its decision to pursue a test case in the High Court, to establish the legality of bank penalty charges.

However, the regulator has stated that the case will only be withdrawn if banks put forward an agreeable compromise that is in the best interests of customers.

At the beginning of this week, Lloyds TSB became the first of the High Street bank to reduce some of its fees for unauthorised overdrafts and other banks are expected to follow suit in the coming months.

While the OFT has stressed that such changes will not bring an end to the legal action, it is still open to negotiation on the issue.

So far, face-to-face negotiations with the banks involved in the case have not taken place but in the event that they do, a High Court judge will not be asked to rule on whether the charges are legal or fair.

Instead the court will rule on whether or not the OFT can decide the issue itself under the Unfair Terms in Consumer Contract Regulations.

The OFT believes that bank overdraft fees come under these regulations but the banks take the view that their charges for unauthorised overdrafts form a core part of their current account business and are not penalties, but fees for a service.

The OFT agrees that, according to common law, the charges are not penalties but maintains that if the charges are fees for a service, they are unfair.

As things stand, banks are working out estimates of the costs involved in bounced cheques and running a current account that is in the red, while the regulator is making its own calculations.