OFT rejects bank claims
Thursday, 15 Nov 2007 14:31
Fees charged by banks when customers go overdrawn will come under scrutiny in a court case next year
The UK's official consumer watchdog has accused banks of charging customers more for unauthorised overdrafts than it costs to provide the money.
In a reply to the main defence put forward by the country's leading banks ahead of a key court case next year, the Office of Fair Trading (OFT) suggested penalty fees levied when current account holders go overdrawn without permission were often "disproportionate" to the amount of money borrowed.
The OFT warned in the document that excess overdraft charges "can and often will result in the customer obtaining credit on uneconomic terms and/or paying charges that are disproportionate to the amount of credit obtained".
In addition the organisation rejected banks' claims the charges related to a service for customers, thus making them outside the scope of current consumer regulations.
The submission to the high court comes ahead of a test case into the matter, which is due to begin on January 14th.
Announcing its decision to pursue the case in July, the OFT said "tens of thousands" of banking customers had complained the charges were unfair.
Critics claim the nation's banks are earning up to £3.5 billion a year in fees charged when customers go over their authorised overdraft limits.
But when the test case was announced, the British Bankers Association (BBA) stressed its members were "firmly of the view that the fees they charge customers are fair and clear".
Reports have also suggested Britain's banks could put an end to so-called 'free banking' and charge for everyday banking transactions in order to recoup revenues if the high court rules overdraft penalty charges are excessive.
A total of seven banks and one building society have agreed to the test case in order to resolve questions about the legality of the penalty fees.
Meanwhile the OFT confirmed today its current market investigation into personal current accounts would not be published until the conclusion of the test case.
"Further information on this investigation will be published after the judgment has been delivered and the OFT has considered its implications," the watchdog said in a statement.