Further delay on bank charges case

There were two pieces of bank-charges case news last week. One was bad for potential claimants; the other was neutral.

The Office of Fair Trading (OFT) has been taking eight banks to court in order to seek confirmation on its legal position. What it wants the legal system to confirm is: does the OFT have the power to decide whether current account contracts have unlawful penalty terms?

The bank charges case moves to the next stage

Both the High Court and the Court of Appeal have so far ruled that the OFT does have that power. The Court of Appeal was the last to hear the case, and refused to grant the banks leave to appeal to the House of Lords. It said that this issue was an easy one, so it would be a waste of the Lords' time. However, the banks appealed directly to the House of Lords to hear them - effectively, they appealed for an appeal.

And, last week, the House of Lords agreed that they will debate this case. That's not surprising. It may be that the courts consider this to be obvious, but the decision will affect just about everyone in the country. Those who have been penalised may get their money back and never receive penalties (of this kind) again, and those who never exceed their overdraft limits may face rising banking fees when the banks seek to replace the lost revenue.

That's why the Lords will have thought it in the national interests for this case to be heard at a higher level. Even so, it is another delay for claimants, many of whom are desperately in need of the money that the banks have charged them, most likely in contravention of the consumer protection laws.

The OFT makes things easier on itself

The other piece of news is that the Office of Fair Trading has decided to reduce the number of banks (and one building society) it is taking to court. It initially selected eight: Abbey, HBOS, HSBC, Lloyds, Nationwide, Clydesdale Bank, Barclays, and the Royal Bank of Scotland Group. The reasoning for taking on these eight was that they represent 90% of the current-account market. If the courts rule in the OFT's favour and the OFT decides later that the charges are unfair, the OFT could be confident that the other banks' charges were unfair too.

However, fighting eight banks must surely have been a considerable strain for the OFT's lawyers. Establishing arguments against so many terms and conditions when facing some of the most persuasive lawyers in the country must be difficult. Each of the banks has its own legal team focusing on their own terms. Dozens of banks' lawyers are facing just a handful of lawyers that represent claimants' interests.

Hence, the OFT has reduced the number of banks it's taking on down to three: HSBC, Lloyds and Clydesdale Bank. It believes that these three are the best representative selection of all the banks' terms, so the end result of this case should still give the OFT the confidence to make rulings on all banks' charges, not just these three. This seems sensible to me and, hopefully, it'll speed up some of the next stages in the case - as well as keep costs down for the taxpayer.

As I've written many times before, this case won't establish whether charges are fair; all it does is establish whether the OFT has the power to rule on charges. The OFT is running an investigation on the fairness of bank charges in parallel to this case. It expects to make a decision on bank charges later this year.

Whether the Lords and the OFT rule in claimants favour, it's likely that a Bank charges victory still years away.

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