Are We About To See The End Of Free Banking?

This week could see the start of another bad period for the banks, thanks to a new test case starting tomorrow (14th Jan).

The High Court is to start ruling on a case the Office of Fair Trading (OFT) is bringing against 7 top banks and the Nationwide building society. The case is looking at charges levied on unauthorised overdrafts and bounced cheques, and according to the BBC, it could bring fundamental changes to high street banking. The first change would be to impose limits on the charges that banks can make for customers going over their overdraft limits, and possibly allow millions to reclaim charges that have been charged in the past, which could be very interesting.

However, the second change would be the knock-on effect of this; feared to be the end of free banking for millions of us.

The court case will happen in two parts: the first will ascertain whether there is a case to bring against the banks. According to the Independent:

First, the High Court is being asked to establish as a point of law whether unauthorised bank charges are subject to the consumer protection rules known as the Unfair Terms in Consumer Contracts Regulations, which came into force in 1999.

This is expected to last no longer than 28th February.

…we will have to wait until April for a judgment from the court, whereupon the second act will begin. If the judge decides that banks are subject to fairness rules when levying overdraft charges, the OFT is expected to go back to court and argue that the current level of charges is disproportionate to the service provided and therefore should be cut. This will give a green light for billions of pounds of compensation to be paid out to customers who believe they have been unfairly penalised and are currently demanding the repayment of up to six years worth of charges. Their claims were frozen pending the outcome of the court hearing.

The banks (& 1 building society) involved in the case are: Royal Bank of Scotland Group, HBOS Group, Abbey, Barclays, HSBC, Clydesdale, Lloyds TSB and Nationwide.

Although that doesn’t cover 100% of banks, the results of the case are likely to have implications for all.

As I say, the action starts tomorrow, so we’ll keep an eye on the proceedings.

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