Banks win overdraft charges appeal

The Office of Fair Trading had been widely expected to win the case, which challenged the charges high street banks impose on customers who go into the red.

If the OFT had won, it would have meant the banks being forced to pay billions of pounds refunding payments made by customers who had cheques and direct debits bounced.

The judges ruled that the charges are part of the price paid by the customer in exchange for having a current account.

Handing down the unanimous ruling today Lord Phillips, president of the Supreme Court, said: ''It may be open to the Office of Fair Trading to assess the charge under other criteria.''

Customers who go into unauthorised overdraft or breach their agreed limit can be charged as much as £35 or more for a single bounced payment. Campaigners claim the actual cost to the banks could be as little as £2.50.

If the banks had lost the test case, it could have cost them £2.6 billion a year in lost revenue and led to their having to make refunds of up to £1 billion.

Before refund claims were frozen, banks had already paid out more than £559 million to customers who complained about ''rip-off'' overdraft charges.

But many of the high street banks have already changed the structure of the fees they charge people who go into the red, with or without permission.

The test case to decide the legal issues thrown up by the dispute was brought jointly by the OFT and Abbey, Barclays, Clydesdale, Halifax Bank of Scotland and Lloyds TSB, which are now part of the same group, HSBC, Royal Bank of Scotland Group and Nationwide Building Society.

The OFT said it would consider the judgment before deciding what to do next.

It said: ''The OFT is disappointed by today's Supreme Court judgment, which overturns previous High Court and Court of Appeal rulings that unarranged overdraft charging terms can be assessed in full for fairness. It will also be disappointing for many consumers.

''The OFT will now consider the detail of this judgment before it makes a decision on whether or not to continue its investigation into unarranged overdraft charging terms.

''It will also explore with others the implications for consumers and for existing and future legislation and regulation. The OFT expects to make a further announcement in December.

''The OFT set out its concerns in relation to unarranged overdraft charges as part of its 2008 market study.

''This found that banks earn around a third of their retail revenues from unarranged overdraft charges that are difficult to understand, not transparent, and not subject to effective consumer control.

''The OFT will be seeking discussions with banks, consumer organisations, the FSA and the Government in the light of this judgment.''