Bank charges: Rise of the consumer or the bank strikes back

Bank charges: Rise of the consumer or the bank strikes back

The past few months have seen considerable publicity regarding the legality and refunding of bank charges.

In a phenomenal consumer campaign banks have been refunding charges on accounts dating back 6 years (the limitation period for contract claims).

Two recent County Court victories by Lloyds TSB suggest a possible reversal in this policy by the banks.  Is this likely to be the case?

The legal principle behind the claims in respect of bank charges is based on the Unfair Terms in Consumer Contracts Regulations (1999).

These regulations strike out terms in consumer contracts which are deemed unfair taking into account the parties respective bargaining positions. One such example cited in the regulations is a term requiring a consumer who fails to fulfil his obligations (for example: not to get overdrawn) to pay a disproportionately high sum in compensation.

In April 2006 the Office of Fair Trading criticised the charges levied by Credit Card Companies for unauthorised spending or the failure to make minimum payments to be excessive, in that they raised significantly more in revenue that than the administrative costs incurred by banks.  The OFT invited the credit card companies to recalculate their charges and suggested that similar principles applied to Bank Charges.

The charges levied by the banks in respect of customers becoming overdrawn is some way in excess of the actual cost to them which is estimated to be no more than £4.50.

The banks’ Defence has been largely that that the consumers have been paying service fees agreed as a matter of contract when the account was opened.

In the cases won by Lloyds TSB, the bank did not turn up for either hearing.   At Birmingham County Court it was held by the District Judge that the charges were legitimate fees for bank services and not charges for breach of contract.  At Lancashire County Court a Claimant’s particulars of claim were struck out as disclosing no reasonable grounds for bringing the claim.  This in essence appears to be a failing in the documentation produced by the Claimant.

Despite this banks are continue to settle claims – why?

Firstly, County Court Judgments are not binding on other Courts – accordingly District Judges are free to disagree with their colleagues’ interpretation of the charges and the law.  Secondly, if an unsuccessful Claimant successfully appeals a County Court decision in the High Court, this will create a binding precedent for District Judges to follow.  This would create serious problems for the Banks who would not only have to consider the refunding of past charges but also the legality of imposing such charges in the future.

On a practical level if banks are forced to rethink their charges this may not be a benefit to consumers as a whole.  The banks will have to consider ways of recouping substantial lost revenue which may lead to other charges such as a return to the annual credit card fee.

But for now, until there is a High Court decision in favour of the banks, the consumer claims will continue.  There may be resistance from the banks, who may still ultimately settle the claim.  If consumers pursue a claim through the County Court they must be extremely careful with their paperwork.

For more information about this, or other litigation related topics, please contact Patrick Nelson on 01785 211411


The contents of this article are for the purposes of general awareness only. They do not purport to constitute legal or professional advice. The law may have changed since this article was published. Readers should not act on the basis of the information included and should take appropriate professional advice upon their own particular circumstances. (50587)