Supreme Court decision

On 25 November 2009 the Supreme Court (formerly the House of Lords) handed down its judgment in the bank charges test case. The banks had appealed a Court of Appeal decision (made on
26 February 2009 – see below) that their unauthorised overdraft charging terms were subject to the test of fairness in the Unfair Terms in Consumer Contract Regulations (the Regulations).

What did the judgment say?

The Supreme Court has decided that the banks’ unauthorised overdraft charging terms are not fully assessable for fairness under the Regulations. This means that terms cannot be assessed on whether the banks are giving fair value for money.

What happens next?

The Supreme Court judgment effectively draws the test case process to an end. We now expect firms to resume dealing with consumers’ complaints in line with the FSA’s complaint handling rules.

Will banks and building societies still charge customers unauthorised overdraft charges?

We expect so. However, the OFT has indicated that it continues to have concerns about the operation of the personal current account market and will be seeking discussions with the banks, consumer organisations, the FSA and the Government to discuss the issue further.

If you have an outstanding complaint with your bank or building society

We expect firms to resume dealing with consumers’ complaints by responding to complaints individually in line with our complaint handling rules. If you are not satisfied with their response you may take your complaint to the Financial Ombudsman Service (the Ombudsman).

If you have complained to the Ombudsman

If you have a complaint that was on hold with the Ombudsman during the test case, they have indicated that you should receive a letter shortly explaining how the Supreme Court ruling affects your complaint. Further information can be found on their website – see Related links.

If you have made a claim in the County Court for a refund of your unauthorised overdraft charges

If you are not sure about what is happening to your case following the Supreme Court judgment you should contact the court directly.

If you are in difficult financial circumstances ('financial difficulty cases')

If you have raised this with your bank or building society then they must deal with your situation sympathetically and positively in line with the industry’s Lending Code – see Related links. If you need help with managing your debts see our Dealing with debt guide.

If you haven’t made a complaint, but want to

You should first contact your bank or building society to give them the opportunity to resolve the matter. If you are not satisfied with their response, you can take your complaint to the Ombudsman. If you need help in making a complaint see If things go wrong or get a free copy of our Making a complaint guide – see Free printed guides. Before deciding whether to do so you may find it helpful to read the information about bank charges complaints on the Financial Ombudsman Service website – see Related links.

In July 2007 the OFT, seven UK banks (Abbey, Barclays, Clydesdale, HBOS, HSBC, Lloyds TSB and RBSG) and the Nationwide Building Society began a test case about unauthorised overdraft charges for personal current accounts.

We were not party to the test case, but had an interest in it, and gave support where needed.

What was the case about?

The test case litigation was expected to take place in two broad stages:

What has happened?

The High Court made the following decisions in Stage One of the test case.

The judge decided that the current terms and conditions:

See April 2008 (PDF) for the full judgment.

The High Court decided that the historic terms and conditions:

See October 2008 (PDF) for the full judgment.

See January 2009 (PDF) for the further judgment.

The banks appealed against the High Court decision that their unauthorised overdraft charging terms were subject to the test of fairness. Two of the banks (HBOS and Abbey) also applied for permission to appeal against the High Court’s decision that their terms were not written in plain and intelligible language.

On 26 February 2009 the Court of Appeal dismissed the banks’ appeal and confirmed that the OFT can assess the terms for fairness under the Regulations. The Court of Appeal refused Abbey and HBOS’ applications for permission to appeal the decision that their terms were not in plain and intelligible language.

See February 2009 (PDF) for the full judgment.

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What is the waiver?

We granted firms a waiver so that they did not have to deal with complaints about unauthorised overdraft charges in the time specified under FSA rules. In effect banks and building societies could put customer complaints on this issue 'on hold' until the test case process was resolved.

The waiver applied only to complaints about unauthorised overdraft charges. Firms had to continue to deal with complaints about other financial matters, such as insurance, mortgages or other complaints regarding their current accounts, in the usual way.

Why did we grant the waiver?

Until July 2007, some customers were being refunded unauthorised overdraft charges when complaining whilst others were not. We didn't believe this inconsistent approach was in the interests of all consumers. So on 27 July 2007, we granted a number of banks and building societies a 'waiver' to support the test case process.

When did the waiver end?

The waiver ended on resolution of the test case. We now expect firms to resume processing consumers’ complaints in line with the FSA’s complaint handling rules. For information on how
to complain see If things go wrong or get a free copy of our Making a complaint guide – see
Free printed guides.

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