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Banks agree to charges test case Banks agree to charges test case
(20 minutes later)
A number of UK banks, including HSBC, Lloyds TSB, Royal Bank of Scotland and Nationwide, have agreed to go to court in a test case for overdraft charges. A number of UK banks, including HSBC, Lloyds TSB, Royal Bank of Scotland and Nationwide, have agreed to go to court in a test case about overdraft charges.
Banks have been locked in a long-running battle with consumers over whether or not overdraft fees levied for unauthorised borrowing are legal. Banks have had a long-running battle with consumers over whether fees levied for unauthorised borrowing are legal.
Thousands of customers have been suing their banks for the return of charges. The Office of Fair Trading will sue the banks claiming the charges are unfair.
The large number of claims have clogged up local courts, and banks were criticised for dodging the issue. Tens of thousands of cases have already been settled out of court, costing the banks millions of pounds in refunded charges, and clogging up local courts.
However, the Office for Fair Trading (OFT) said that the lenders approached the UK's financial watchdogs in order to sort out the problem and agreed to the test cases in England and Wales, Scotland and Northern Ireland. Market watchdog the Finanicial Services Authority (FSA) will allow banks to suspend dealing with any claims filed against them until the test case is decided.
Banks will still need to make a note of any claims lodged, and will have to honour offers to settle claims that were made recently.
Unfairness rules
The Office for Fair Trading (OFT) said that the lenders approached the UK's financial watchdogs in order to sort out the problem and agreed to the test cases in England and Wales, Scotland and Northern Ireland.
The OFT said that on Friday it would commence proceedings in England's High Court for "a declaration on the application of the law in respect of unauthorised overdraft charges".The OFT said that on Friday it would commence proceedings in England's High Court for "a declaration on the application of the law in respect of unauthorised overdraft charges".
"The banks do not accept that the unfairness rules of the Unfair Terms in Consumer Contract Regulations apply. The OFT believes that they do and is seeking to establish this legal principle clearly in the court," it added."The banks do not accept that the unfairness rules of the Unfair Terms in Consumer Contract Regulations apply. The OFT believes that they do and is seeking to establish this legal principle clearly in the court," it added.
"The OFT considers that a quick determination of this point of principle will assist in securing a clear and orderly resolution of the fairness of these charges.""The OFT considers that a quick determination of this point of principle will assist in securing a clear and orderly resolution of the fairness of these charges."
To date, the banks have been reluctant to contest such cases, usually settling out-of-court.To date, the banks have been reluctant to contest such cases, usually settling out-of-court.
So far no bank has outlined the case for its charges in open court.So far no bank has outlined the case for its charges in open court.
If a bank were to do so and lose its argument that the charges were fair, it could lead to many more bank customers getting refunds.If a bank were to do so and lose its argument that the charges were fair, it could lead to many more bank customers getting refunds.
Banks have already had to pay out millions of pounds in refunded bank charges.