Bank charges case goes to High Court

|PIC1|A test case on whether bank charges are legal and fair begins in earnest on Monday when the High Court hears evidence on the fees in a key phase of a potentially long legal battle.

Major banks and the consumer watchdog began court proceedings in July to resolve a dispute on the charges applied to unauthorised account overdrafts, after thousands of customers reclaimed millions of pounds in refunds but banks continued to impose the charges.

A preliminary hearing at the High Court is due to start on Monday to decide whether the charges, typically between 24 and 39 pounds for each unauthorised overdraft, should be regarded as unfair under consumer contract regulation.

Legal experts said when proceedings began last year that it was likely to take at least a year for the case to be resolved.

Britain's top banks paid out more than 400 million pounds in refunds in the first half of 2007, but say the charges are fair and clear.

"Banks do not accept that the fees are penalties. The banks believe that unauthorised overdraft fees are fair fees for providing their customers with a service," the British Bankers' Association said.

The Office of Fair Trading (OFT) launched an investigation into the charges last March after a customer backlash. It wants the High Court to establish a legal principle showing the charges are unfair.

Eight leading banks and building societies have joined the test case, saying they and their customers want legal clarity.

The preliminary court ruling is expected in April or May. If charges are deemed unfair the OFT is expected to suggest a charge that it considers more appropriate, which the court could consider and potentially rule on before the end of the year.

Until the case is decided the Financial Services Authority has said all customer claims for refunds are on hold.

The court case comes after claims for refunds accelerated sharply early in 2007 amid high profile media coverage, Internet sites explaining the process and anecdotal evidence that banks had been repaying the charges in full.

Tens of thousands of Britons have so far claimed back up to six years worth of penalty fees.

Consultancy Accenture said on Wednesday charges for bank customers were among the lowest in the world, but banks need to do a better job of working with regulators and applying simpler and more understandable charging structures.