Bank Charge Case To Go On For Weeks
The High Court has been told that current account customers are comfortable with the system of charges in place at the moment under which they only pay when they get into the red.
Defence for the Royal Bank of Scotland, Laurence Rabinowitz, QC, said that the alternative to the current system would be to put charges onto all transactions. The RBS is one of eight lenders who have been accused of making unfair charges to their customers. The Office of Fair trading (OFT) would like the court to rule that banks' fees can be challenged under consumer law.
There could be fundamental changes to the way current accounts work in the UK depending upon the outcome of the case.
The Nationwide building society and seven banks have agreed to the test case to give some clarification to the legal position, following a large number of cases worth millions of pounds brought by consumers against banks' charges.
If the OFT's case is upheld then banks and building societies would have to return those millions collected from customers over the past six years or so.
The argument by Mr Rabinowitz is that the present system is fair, current accounts representing a bundle of services, and charges being levied for the bundle. The way it works at the moment is that those in the red subsidize those who stay in credit. This business model is popular, Rabinowitz told Mr Justice Andrew Smith, the judge hearing the case.
Those in the red were not only paying for their unauthorised overdrafts. "It is incorrect to say they are charged only for those services," said Rabinowitz.
"The package of services is always being supplied. They are at one and the same time charged both for the specific service and the overall bundle of services," he added.
The legal issue could hinge on the points Rabinowitz makes. The OFT says that the overdraft charges levied by the banks go against regulations made in 1999 to govern unfair consumer contracts. If their case is successful then a judgement would have to be made as to whether the charges are too high.
Mr Rabinowitz contended that the overdraft charges related partly to the main subject of the contract for the use of a current account, and that consumer regulations therefore do not apply. The banks agree with this line.
According to Mr Rabinowitz, if the banks were prevented from charging in this way, then they would impose charges for every current account transaction.
Chief executive of the British Bankers' Association, Angela Knight has warned about the 'consequences' of a victory for the OFT.
Experts forecast that free banking could end as a result of a successful OFT action. Millions of current account holders currently benefit from free banking if they stay in credit.
The hearing is expected to last several weeks - longer than at first thought - with an initial ruling expected around Easter. Whichever side loses is expected to appeal, and the case may end up in the House of Lords.
Published on January 24, 2008
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