UK high court rules overdraft fees part of banking services cost

[JURIST] The UK Supreme Court [official website] on Wednesday ruled [text, PDF; press release] that the Office of Fair Trading (OFT) [official website] may not challenge the fairness of bank overdraft fee charges as a matter of law. The Court ruled in favor of seven major banks and one building society appealing a lower court decision, holding:


[T]he bank charges levied on personal current account customers in respect of unauthorized overdrafts...constitute part of the price of remuneration for the banking services provided and, in so far as the terms giving rise to the charges are in plain intelligible language, no assessment under the [Regulations] of the fairness of those terms may relate to their adequacy as against services provided.

The Court emphasized the limited nature of the decision in that the ruling does not pertain to whether or not the fees are fair, and characterized the fee system as one of cross-subsidies that enables the functioning of free-if-in-credit banking. The Justices wrote in their opinions that the banking fees may be challenged on other grounds and that legislative measures could be enacted to regulate the fees. The OFT considered [press release] the ruling a disappointment and will issue an announcement after determining whether to continue investigating the fees. The British Banker's Association [official website] welcomed the decision, but expressed willingness "to work together with the OFT in connection with its on-going Market study." The decision came as a surprise [Guardian report] to experts and consumers, many of whom had expected the Court to affirm the lower court decision.

In the UK, the OFT may review fairness of consumer contracts outside of the main subject matter, as delineated by the terms of the Unfair Terms in Consumer Contracts Regulations 1999 SI 1999/2083 [text], based on European Council Directive 93/13/EEC. An estimated one-third of UK banks' retail revenue stems from overdraft fees, according to an OFT 2008 market study [press release; report, PDF] on personal current accounts.

 

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