Earlier this week the eagerly awaited High Court test case relating to bank charges in the UK began. Bank charges have been at the centre of controversy for a couple of years now, ever since campaigners and regulators pointed out that banks were charging consumers far more than it was actually costing the banks for exceeding overdraft limits, for bounced cheques, and for returned direct debits. Some banks were charging consumers close to £40 per fee, whereas the actual cost to the bank is thought to be between £2 and £5.

These charges were labelled unfair and unlawful by regulators, and as a result of this many banking customers in the UK were able to claim back their charges going back up to six years. Banks ended up shelling out millions of pounds in returned charges, and the row continued blazing until last summer.

It was then decided that a test case would be arranged to determine whether banks should charge these fees and if so how much they should charge as a fair fee. Many banks suspended claims after being given the go ahead to do so by authorities, and decided to wait for the results of the test case before dealing with any further claims.

The High Court test case has been brought by the Office of Fair Trading, which will be challenging seven well known banks and the Nationwide Building Society. The results of the case could change the banking industry in the UK, but some are concerned that consumers could lose out no matter what the outcome. In the event that the Office of Fair Trading wins the case and bank charges are abolished, banks are more than likely going to introduce monthly account fees, which will be charged to all account holders.

In the event that the banks charges are kept but reduced customers with pending claims will receive a far lower level of compensation than they would have otherwise received, as banks will only pay them a portion of each charge they are reclaiming.

One official from consumer group Which? did not think that bank fees would pose a massive problem. He stated: ‘There is a reputational issue at stake for the banks. They won’t want to be seen to be making extra cash out of this court battle by introducing general bank fees. Also, customers will look to switch their account if their bank starts charging a monthly fee, so it will only work if all banks, as opposed to a few, start to charge.’

Speaking of the test case he also stated: ‘The banks will be asked to demonstrate that the charges are a core term of the contract between the bank and the accountholder or that they are service charges. The OFT will try to demonstrate they are not. If the High Court judge agrees with the OFT, this should open the floodgates for compensation on a large scale for victims of unauthorised overdraft charges. In this scenario the OFT will then have to determine what it considers is an appropriate fee or charge for unauthorised borrowing based on the actual cost to the banks.’

Tom Smith

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