Member Article

Highly Charged

With Watson Burton LLP Law Firm

The charged debate on high bank fees is in full flow following a victory for Lloyds TSB in a county court case against a customer trying to reclaim £2,000 in unauthorised overdraft charges last month.

The claim was based on the premise that bank charges are penal in nature and therefore unlawful. Where a breach of contract has occurred (such as exceeding an agreed overdraft), any charge imposed should represent a genuine pre-estimate of the likely damage and should reflect costs or expenses incurred. Penalties over and above such compensation are unlawful. However, the claim was dismissed on the grounds that the fees levied were a legitimate part of the bank’s service, being administration costs, and, as such, were not default or penalty fees and could not be said to be unfair.

This is the first time a bank has fought a disputed bank-charge claim in court and won, despite the volume of proceedings issued. They have all been settled. The Consumer Action Group say that the banks have already refunded more than £10 million to the 7,573 people who have reclaimed charges using its service. Banks have been paying claimants off rather than risk a precedent-setting defeat.

However, the Lloyds TSB decision does not provide any certainty for banks as it was made by a district judge and, as such, does not set a precedent in the way that a High Court judgment would. The decision is also expected to be appealed. Furthermore, Tom Brennan, a junior barrister, is taking NatWest to court in relation to £2,500 in charges, despite being offered almost twice his claim amount by the bank, which he rejected. This highlights just how keen banks are to keep cases out of court. Such determination could lead to a successful prosecution and open the floodgates for billions of pounds more in refunds.

There is to be further intervention as the OFT have announced an inquiry into the fairness of these charges and it is expected to cap penalty fees as it did with credit card charges last year. The Competition Commission further recommends 14 days’ warning of charges. However, such intervention has been delayed and the current situation has been described as a “lottery”: boundaries have not been set on whether a charge represents a service or fairly compensates the bank for the customer’s default, or whether it is an excessive penalty, and presently, no precedents have been set by higher courts. There are no guarantees.

If you have any queries about this article, please contact Nicola Marriott at Watson Burton LLP at nicola.marriott@watsonburton.com or call on 0191 244 5507.

This was posted in Bdaily's Members' News section by Ruth Mitchell .