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Banks lose overdraft charges court case

The UK's biggest banks lost a test case about overdraft charges. This means consumers are one step closer to being able to reclaim millions of pounds worth of bank charges.

The historic judgement rules that the Office of Fair Trading (OFT) can decide what level of charges is fair, or failing that, a court can decide. The case was brought to try and clarify the law after individual consumers began to reclaim hundreds of millions of pounds of charges through the courts.

You incur the charges in question if you go into the red and your bank hasn't authorised this, or if you go over your agreed limit. You can also end up paying out if the bank bounces a cheque. Consumer groups say these charges are unfair and too high.

Commenting on the judgement, consumer group Which? said "The banks should do the right thing now: concede defeat, agree with the OFT about what constitutes a fair unauthorised overdraft fee and refund their customers as soon as possible. Every second that this issue remains unresolved is costing consumers up to £11m in overdraft charges".

However, the banks are likely to appeal the decision. It is estimated that they make £3.5 billion a year from levying the charges. If they are eventually defeated, they may well try and make up the difference by ending "free-banking", even for customers in credit.