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OFT may compromise on bank fees OFT may compromise on bank fees
(29 minutes later)
The Office of Fair Trading (OFT) could drop next year's High Court test case over bank overdraft charges, a senior official has said.The Office of Fair Trading (OFT) could drop next year's High Court test case over bank overdraft charges, a senior official has said.
But the OFT added it would only do this if the banks put forward an agreeable compromise and if such a deal was in the best interests of customers.But the OFT added it would only do this if the banks put forward an agreeable compromise and if such a deal was in the best interests of customers.
The court is due to decide next year whether the OFT has the power to rule that bank overdraft fees are unfair.The court is due to decide next year whether the OFT has the power to rule that bank overdraft fees are unfair.
The eight banks challenging the OFT say it has no jurisdiction in the matter.The eight banks challenging the OFT say it has no jurisdiction in the matter.
On Monday, Lloyds TSB became the first of the big High Street banks to cut some of its overdraft fees, after paying out millions of pounds in so-called "goodwill payments" to tens of thousands of unhappy customers.On Monday, Lloyds TSB became the first of the big High Street banks to cut some of its overdraft fees, after paying out millions of pounds in so-called "goodwill payments" to tens of thousands of unhappy customers.
Lloyds customers - and those of other banks - have claimed that charges levied for running up unauthorised overdrafts are illegal and unfairly high.Lloyds customers - and those of other banks - have claimed that charges levied for running up unauthorised overdrafts are illegal and unfairly high.
NegotiationNegotiation
Other banks are expected to copy Lloyds example in coming months.Other banks are expected to copy Lloyds example in coming months.
We will be looking out for what is the best outcome for the consumer Cavendish Elithorn, OFTWe will be looking out for what is the best outcome for the consumer Cavendish Elithorn, OFT
Any such changes will not, on their own, deflect the OFT from its legal action.Any such changes will not, on their own, deflect the OFT from its legal action.
But a senior official, Cavendish Elithorn, made it clear that the OFT was open to negotiation on the issue.But a senior official, Cavendish Elithorn, made it clear that the OFT was open to negotiation on the issue.
"If we do our own financial analysis, and they [the banks] come in with a number that is lower than our analysis would suggest is an unfair charge, there is no need for the court case to go forward," he said."If we do our own financial analysis, and they [the banks] come in with a number that is lower than our analysis would suggest is an unfair charge, there is no need for the court case to go forward," he said.
"We will be looking out for what is the best outcome for the consumer.""We will be looking out for what is the best outcome for the consumer."
But Mr Elithorn did stress that so far there has been no face-to-face negotiation with the banks.But Mr Elithorn did stress that so far there has been no face-to-face negotiation with the banks.
AuthorityAuthority
However, if and when the case goes ahead, the judge will not be asked to rule on whether bank charges are legal or fair.However, if and when the case goes ahead, the judge will not be asked to rule on whether bank charges are legal or fair.
Lee Coward is one of the thousands of customers to sue their banksLee Coward is one of the thousands of customers to sue their banks
Instead the judge will have to decide whether the Unfair Terms in Consumer Contract Regulations apply to them.Instead the judge will have to decide whether the Unfair Terms in Consumer Contract Regulations apply to them.
The OFT believes typical bank overdraft fees come under these regulations, that they are unfair and that it therefore has the power to order changes.The OFT believes typical bank overdraft fees come under these regulations, that they are unfair and that it therefore has the power to order changes.
But banks argue that the charges are a core feature of their current account business and so they are not covered by the regulations, they are fair and that the OFT has no powers in the matter.But banks argue that the charges are a core feature of their current account business and so they are not covered by the regulations, they are fair and that the OFT has no powers in the matter.
AgreementAgreement
Intriguingly, the OFT revealed that it actually agrees with part of the banks' arguments.Intriguingly, the OFT revealed that it actually agrees with part of the banks' arguments.
We think the fairness test will still apply Cavendish Elithorn, OFTWe think the fairness test will still apply Cavendish Elithorn, OFT
They claim that their charges are not penalties, but are fees for a service - for running a current account while it is in the red.They claim that their charges are not penalties, but are fees for a service - for running a current account while it is in the red.
"In most instances we would probably agree with the banks' arguments that these are not penalties as defined in common law," said Mr Elithorn."In most instances we would probably agree with the banks' arguments that these are not penalties as defined in common law," said Mr Elithorn.
But he insisted that the OFT Still believes the charges are unfair - even if they are "fees for a service". But he insisted that the OFT still believes the charges are unfair - even if they are "fees for a service".
"We think the fairness test will still apply," he added."We think the fairness test will still apply," he added.
All these legal arguments will be novel in the UK courts and are clearly of great importance to both sides.All these legal arguments will be novel in the UK courts and are clearly of great importance to both sides.
However a final decision may be more than a year away if the case goes to the Appeal Court and then the House of Lords.However a final decision may be more than a year away if the case goes to the Appeal Court and then the House of Lords.
No more free banking?No more free banking?
With the OFT two-thirds of the way through a nine-month investigation into the fairness of overdraft charges, banks are now giving the watchdog their own estimates of how much it costs to run an account in the red and to bounce cheques.With the OFT two-thirds of the way through a nine-month investigation into the fairness of overdraft charges, banks are now giving the watchdog their own estimates of how much it costs to run an account in the red and to bounce cheques.
It may be that some banks may charge some customers an annual fee Cavendish ElithornIt may be that some banks may charge some customers an annual fee Cavendish Elithorn
The regulator is about to do its own number crunching to establish what level of charges it believes are unfair.The regulator is about to do its own number crunching to establish what level of charges it believes are unfair.
However, it estimates that fees and charges for going overdrawn without permission bring in between £2bn and £3.5bn a year to the UK banking industry's revenue.However, it estimates that fees and charges for going overdrawn without permission bring in between £2bn and £3.5bn a year to the UK banking industry's revenue.
The OFT has denied that the case could lead to the reintroduction of monthly or annual account charges; the end of so-called "free banking" for those whose accounts stay in credit.The OFT has denied that the case could lead to the reintroduction of monthly or annual account charges; the end of so-called "free banking" for those whose accounts stay in credit.
"It may be that some banks may charge some customers an annual fee," said Mr Elithorn."It may be that some banks may charge some customers an annual fee," said Mr Elithorn.
But he pointed out that in contrast to the fees earned from charging for overdrafts, a standard charge of £300 a year, applied to the country's 75 million current accounts, would generate an extra £20bn or so in income for the banks.But he pointed out that in contrast to the fees earned from charging for overdrafts, a standard charge of £300 a year, applied to the country's 75 million current accounts, would generate an extra £20bn or so in income for the banks.
"I believe that if the banks tried to extend such charges much more broadly that some other banks would continue to compete quite vigorously to keep free banking," said Mr Elithorn."I believe that if the banks tried to extend such charges much more broadly that some other banks would continue to compete quite vigorously to keep free banking," said Mr Elithorn.