Supreme Court Judgment Means Disappointment For Bank Customers - But It Is Not The End Of The Road

The Supreme court has overturned earlier court rulings that were to allow the Office of Fair Trading to investigate the fairness of charges for unauthorised overdrafts. The decision will mean that millions of bank customers who had been hoping that their overdraft charges would be refunded will be left disappointed. The decision follows more than two years of test case litigation.

The case had been taken to the Supreme Court on appeal by the Banks, who would stand to lose as estimated £2.6bn of annual income had the earlier ruling been allowed to stand. Seven banks and one building society wanted the court to overturn two previous rulings that would have let the OFT investigate their overdraft fees. During the three-day hearing in the House of Lords in June, the banks argued they would receive a "deluge of litigation" if the decision was made against them.

In July 2007 new claims against the banks were effectively suspended when the OFT agreed to stage a test case to determine if the overdraft charges were in fact legal. This latest decision will not prevent the OFT from taking any further action over the charges.  The OFT has previously said that even if it lost, it would still try to use other powers, perhaps by instigating a full Competition Commission enquiry, to attack overdraft fees.

The Supreme Court's president Lord Phillips said that bank customers agreed to pay overdraft charges as part of the price of having a current account, so they fell outside the scope of the appropriate regulations. However Lord Phillips added that this was not the end of the matter as the OFT could still try to scrutinise bank charges under other parts of the regulations. "This will not close the door on the OFT's investigations and may well not resolve the myriad cases that are currently stayed [put on hold] in which customers have challenged the relevant charges,"  he told the court. The Supreme Court ruled out the possibility that any appeal could be brought to the European Court of Justice by the OFT. 

The Supreme Court ruling will come as a bitter blow to the consumer organisations who have campaigned against what they considered to be unfair overdraft charges. Marc Gander, of the Consumer Action Group, said that he was "shocked" about the Supreme Court ruling.

Phil Jones, from the consumers' association Which?, said that he was "utterly outraged" by the ruling.

But the British Bankers Association, which represents the banks, said: "We recognise this issue has been of real concern to a large number of our customers and we are pleased that this decision now brings clarity for all parties. The banks will work with the regulators to ensure that the outstanding customer complaints are brought to a swift conclusion."

However, the Supreme Court did not give any explicit guidance as to how the judicial authorities should deal with the frozen cases. "What is not clear yet is what happens to the refund claims that have been on hold since July 2007," said BBC personal finance reporter Ian Pollock, who was in court. "They may stay that way if the OFT attacks bank charges another way, perhaps by triggering a full Competition Commission inquiry. Alternatively, the judicial authorities may simply invite local judges to dismiss the claims that have stacked up before them."

Angela Knight, from the BBA, was asked whether they would continue to make unauthorised overdraft charges. "The banks are mindful of their customers, they know the concerns of those who have paid the unauthorised overdraft fees and those who have not," she said. "Individuals can avoid any charge by putting their overdraft arrangements in place first."