U.K. banks lose first part of case challenging overdraft fees
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Justice Andrew Smith ruled today that overdraft fees are subject to laws regulating unfair terms in consumer contracts, allowing the Office of Fair Trading to continue its legal challenge to the policy.
The largest British banks charge between 15 pounds ($30) and 30 pounds and as much as 30 percent in interest to customers who bounce checks or spend more than they have in their account, according to data company Moneyfacts Group Plc. The lenders and the regulator agreed in July to take the issue to court in a test case to clarify the law.
``I reject the banks' contention that the relevant terms are exempt from assessment as to fairness,'' Smith said in the ruling. ``This does not mean that the relevant terms are necessarily to be regarded as unfair.
The OFT argued the fees, which generate as much as 1 billion pounds in revenue, were illegal because they don't reflect the cost of administering the accounts. Some customers have won similar claims in other courts.
In 2006 the banks reduced their credit-card default fees after the regulator said they didn't reflect administration costs.
The banks being sued are RBS, HSBC, Abbey National Plc, Barclays Bank Plc, HBOS Plc, Clydesdale Bank Plc, Lloyds TSB Bank Plc and Nationwide Building Society.
Overdraft fees represent about 8 percent of Lloyds TSB Group's pretax profit and 4 percent of Barclays's pretax profit, Credit Suisse analysts have estimated.
- Bloomberg
- James Lumley
