Nothing Succeeds like Excess: the Supreme Court Ruling on Bank Charges

Unfortunately, for those who have pending actions against the various banks for such charges, the Supreme Court’s ruling is final and, worse still, it decided not to refer the matter to the European Court of Justice. This means that, for the time being at least, the banks are perfectly entitled to continue charging what the vast majority of customers (and the OFT for that matter) consider to be excessive overdraft fees.

The Supreme Court did, however, confirm that "the charges might still be open to assessment by the OFT on other grounds". Lord Phillips confirmed that the ruling does not preclude the OFT or individuals from attacking the charges on the basis that they are "unfair" under Regulation 5(1) of the Regulations, although this could not be based on an allegation that the relevant charges are excessive by comparison with the services which they purchase.

He stated that it may be "open to question whether it is fair to subsidise some customers by levies on others who experience contingencies that they did not foresee when entering their contracts" (resulting in paying unauthorised overdraft fees). The banks’ success on the narrow issue in this case "will not close the door on the OFT's investigations and may not resolve the myriad cases that are currently stayed [put on hold] in which customers have challenged the relevant charges".

If the banks had lost the decision, it would certainly have opened the floodgates, as it was estimated that the banks would have been forced to refund up to £10billion in claims. Given the current strife in which the banks find themselves, this could have had a catastrophic effect; although it is arguable that they would simply have tried to recoup their losses by introducing different types of charges for customers.  

The OFT is left with the option of giving up; trying to broker a deal with the banks on behalf of all of us as the ultimate consumer; or to raise a new line of attack under the Unfair Terms in Consumer Contracts Regulations. The OFT has yet to confirm what it is going to do (and perhaps it does not consider the Regulation 5 point a runner); meanwhile, in light of the judgment, the banks will be pressing hard for the currently suspended claims against them to be dismissed. 
 
However, those who were able to secure a repayment of overdraft charges from the banks prior to July 2007 will not have these payments clawed back by the banks, because such payments were apparently made as a gesture of goodwill.

So, what next?

Anyone with pre-existing claims not already paid out should take steps to investigate what can be done to attack these charges under Regulation 5, as pointed out by Lord Phillips. However, given that Regulation 5 is more concerned with the quality of the relationship between the bank and the consumer, it has been argued that the consumer would need to have a tangible reason to contest the charges successfully.

The consumer would probably need to point to a specific incident of unfair treatment, such as unreasonable demands for repayment of overdrafts or the inaccurate recording of customer details. Thereafter, consumers would have to show that the loss they suffered emanated directly from the bank’s actions. Perhaps all is not lost after all.

James Robertson specialises in commercial and civil litigation, and can be contacted on +44 (0)20 7749 2700 or jvar@silvermansherliker.co.uk.