Another small step forward against the Banks
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In another chapter in the ongoing bank charging saga, some customers of NatWest bank have a new opportunity to reclaim their bank overdraft charges after a High Court judge has ruled that the bank’s terms and conditions, used from 2001 to July 2003, may have included unfair penalties for going overdrawn.
The ruling by Mr Justice Andrew Smith is one of a several in the long running test case on bank charges. Most overdraft claims in county courts have been halted since July 2007 while the High Court resolves the issue.
The Nat West website claims that, “the court found that a single historic NatWest term prohibited customers from using a card to go overdrawn but this does not mean that that term is a penalty.”
The consumers’ organisation Which? Says that in theory some NatWest customers could now ask the courts to reopen their claims, but warned it would not be plain sailing.
The point is that the judge has said the Nat West charges may be penalties, which gives grounds for appeals, but he did not say that they are penalties. The onus remains on the customer to demonstrate that the charges really are penalties and did not reflect the cost to the bank of administrating the overdraft.
Also, as the issue of charges reflecting the cost to the bank is part of the OFT’s ongoing fairness assessment, Nat West may be able to convince the court to stay any cases brought against it until the OFT’s investigation is complete.”
The banking industry and the Office of Fair Trading (OFT) are waiting for the Appeal Court to hand down its judgement on a bank appeal against an earlier ruling by Mr Justice Smith. Last year he dealt a blow to the right of banks to levy high overdraft charges when he decided that the 1999 regulations, regarding unfair terms in consumer contracts, gave the OFT the right to scrutinise those charges.
This week’s judgement by Mr Justice Smith was one of three residual decisions, made on whether or not charges levied under old or “historic” terms and conditions could also be penalties under common law, and therefore not recoverable.
Last October he cleared most of the old contracts used by seven banks and the Nationwide building society, who are the parties to the test case with the OFT. However he needed more time to consider some of the terms and conditions used in the past by the Abbey, Lloyds TSB and RBS NatWest.
This week he gave the first two of those banks the rulings they had been seeking; that their former current account conditions did not fall foul of common law. But he found against the NatWest.
The significance of the judge’s decision is that if a clause in a contract imposes an obligation not to do something – such as not going overdrawn on a current account without permission – then any money charged for breaking that condition must not be more than is actually necessary to compensate the bank.
That is because under common law it is illegal for any penalty charges or fees, imposed by a business, to be excessive.
Campaigners have argued that typically it does not cost a bank more than about £2 to tell someone they have gone overdrawn and to repay their unauthorised borrowing. In contrast, bank charges have sometimes been more than £30 each time a customer has gone into the red or had a cheque bounced.
The OFT and RBS group are now considering their positions pending finalisation of the order. This means either side could appeal, which might delay any attempt to start a case in the county courts.
Taken together with the earlier decision of Mr Justice Smith that the OFT has the right to examine bank charges this further ruling including Nat West’s terms and conditions for a certain period demonstrate that the case is going the right way for consumers. However, the interminable bank delaying tactics will continue for some time yet.
