Banks submit that unreasonable charges pay for a service

by Gill Montia

Story link: Banks submit that unreasonable charges pay for a service

The High Court case brought by the Office of Fair Trading (OFT), over unreasonable bank charges, has heard from defence counsel that unauthorised borrowing is a central feature of any current account.

Laurence Rabinowitz QC, who is acting for Royal Bank of Scotland (RBS), described overdraft facilities as “core” features of accounts, which could mean that consumer law does not apply to any charges made.

RBS says that its average customer goes overdrawn without permission three times a year and Mr Rabonowitz is arguing that providing such customers with unarranged credit is a “substantial and valuable service”.

If denied, customers would not be able to draw on cheques until six days after they had been paid in and debit card payments could not be guaranteed by banks.

Instead, retailers would have to check every transaction with the card-issuing bank.

The argument that processing payment instructions and providing unauthorised credit is a service, is central to the defence of the seven banks and one building society involved in the OFT action.

Their claim that unauthorised overdraft charges are fees for a “core” part of the current account product means they cannot be categorised as “unfair penalties” that could fall foul of consumer law.

Mr Rabinowitz summed up his main submission by saying: “So long as they [the charges] are payments for services, and are not payments for breach of contract, they cannot be penalties.”

An initial ruling in the case is expected around Easter.