uSwitch.com: OFT judgement

Simeon Linstead, Head of Personal Finance at uSwitch.com, the independent price comparison and switching service, comments on the judgement today that the Office of Fair Trading (OFT) can apply consumer contract regulations to decide if bank overdraft charges are fair or not.

"Finally, nine months after this test case was announced, consumers finally appear to be getting some kind of resolve in the ongoing battle between the OFT and the big banks. The decision paves the way for a further hearing in which the court will decide whether the charges are unfair and, if so, what a fair charge should be. However, let's not get too excited as this is the very first stage in, what could be an extremely long process. In reality, this will take years not months to conclude.

"Make no mistake, banks will fight this battle tooth and nail, especially given the current economic climate and its impact on the UK banking industry. Consumers should not be fooled into thinking banks will want to give up the extra revenue that excessive default charges brings in. uSwitch.com research has indicated that banking customers have paid out an average of £742 each in charges over the last six years, it is unlikely banks will be anything less than willing to pay all this back.

"As the case rumbles on, uSwitch.com estimates that more than one million consumer claims have been on hold since July 2007 awaiting refunds on default charges, totalling more than £713 million. From the start of the claims freeze to January 2008, banks have made £20.5 million in interest on this money. Meanwhile, consumers waiting to reclaim these funds remain out of pocket for the foreseeable future.

"OFT figures state that banks make £3.5 billion every year from these charges - a staggering £400,000 an hour. This is potentially a huge loss of income which the banks will be forced to recoup. Unfortunately, they can no longer just get this money from consumers that repeatedly incur bank charges, it will have to be taken from all of the UK's 40 million current account customers in order to spread the financial burden. Ultimately, all consumers will have to pay the price for people that do not comply with the terms and conditions of their current account and could end up having to pay for every banking transaction carried out."