Judgment on first stage of OFT test case

April 2008

Update 28.04.08

The Banks welcome the judgment that the Court issued on 24 April 08 on the first stage of the test case relating to unarranged overdraft charges. The test case process was initiated by the Banks, with the OFT, to bring clarity to an issue which is of concern to a large number of bank customers.

This judgment - which contains important points for both the banks and the OFT to consider – marks the first stage in the test case process. The Banks remain committed to resolving, through the Court, the legal issues concerning unarranged overdraft charges. The judgment illustrates how complex those issues are.The Banks and the OFT agreed that the case should move forward as quickly as possible and this has been achieved, with assistance from the Court. The Banks expect that the case will continue to progress as quickly as possible and will work with the OFT to achieve that.

The Court has decided (subject to appeals) that the Banks’ current terms and conditions relating to unarranged overdraft charges:

(a) are not unenforceable penalties; but

(b) are assessable for fairness under the Unfair Terms in Consumer Contracts Regulations 1999 (“UTCCRs”).

The Banks are pleased that the Court has agreed that their current charges are not unenforceable penalties. The Banks believe that the same analysis will apply to charges under their historic terms.

In relation to the UTCCRs, the Court has emphasised in the judgment that the question of whether the Banks’ charges satisfy the fairness requirement of the UTCCRs has not been determined by the Court. That is a question that can only ultimately be decided by the Court and not, for example, by the OFT.

The Court also reached the following conclusions:

• unarranged overdrafts are one of the essential, real and identifiable services which the Banks provide to their personal current account customers
• as a matter of legal analysis the terms and conditions of many of the Banks accurately reflect the fact that when a customer tries to make a payment without sufficient funds or an arranged overdraft, the customer is requesting an unarranged overdraft; and
• the banks’ current terms and conditions are largely in “plain intelligible language”, except in “certain specific and relatively minor respects”.

A further hearing or hearings will now be required in order for the Court to determine the issue of fairness (and any outstanding issues relating to the application of the principles in the judgment to the Banks’ historic terms).  The Banks believe their charges are fair and that the charges will therefore be upheld by the Court at this next phase.

A further procedural hearing is set for 22 May, which is known as a Case Management Conference. By this time, the Banks and the OFT will have decided if they want to appeal against this judgment. Further court hearings will be required to determine whether the Banks’ charges are fair. The Banks are keen that all outstanding issues should be resolved as expeditiously as possible.

As previously agreed with the Financial Ombudsman Service and FSA, customer complaints relating to unarranged overdraft charges will remain on hold.  The Banks will continue to ask County and Sheriff Courts to keep cases relating to unarranged overdraft charges on hold until the test case process is concluded.

Please continue to refer to our website for further information. We will continue to post updates to keep customers informed of progress on the test case.