The Supreme Court has ruled in favour of the banks

25 November 2009

Karen Cole discusses the new ruling on bank charges.

One of the first decisions of the new Supreme Court (which recently replaced the House of Lords as the highest court in the UK) has been handed down.  Unfortunately, the decision will come as a disappointment to many bank customers who have suffered high levels of charges after they exceeded agreed overdraft limits.  The Supreme Court has ruled in favour of the banks.

The Supreme Court has heard the appeal of the Office of Fair Trading (Respondents) v Abbey National plc & others (Appellants) 2009.  It had to decide whether the OFT could launch an investigation into whether the banks’ charges for unauthorised overdrafts were fair.  

The OFT has power to assess the fairness of terms in consumer contracts but this is subject to the provisions laid down in the Unfair Contract Terms in Consumer Contracts Regulations 1999.  It is Regulation 6 that provides that an assessment of the fairness of a term in a contract, “shall not relate…..to the adequacy of the price or remuneration, as against the goods or services supplied in exchange”.  The Court of Appeal had ruled that this exclusion applied only to the ‘core terms’ of the contract and not to ancillary terms such as the charges for unauthorised overdrafts.  The Supreme Court has unanimously held that the charges for unauthorised overdrafts fell within that exclusion.  They were part of the price paid by the customer for the banking services provided

The Supreme Court also noted that the tradition of free ‘in credit’ banking was only possible because of charges levied against those who go overdrawn.

The decision does not preclude the possibility that the OFT could challenge the fairness of other aspects of bank charges.  However, it does mean that tens of thousands of customers who had pending applications for refunds of charges will now not receive them.

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