Richard Willis's Blog

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The Supreme Court and Bank Charges

Today the new Supreme Court gave an eagerly anticipated ruling on whether or not the Office of Fair Trading (OFT) had the authority to rule on bank penalty charges. The Supreme Court was set up on 1 October 2009 to replace the historic legal role of the House of Lords as the final court of appeal in the English legal system.

The essence of the case was that the OFT had sought legal clarification on its powers to decide whether charges imposed by banks for unauthorised over-drafts were fair. Banks had charged between £25 and £40 when customers in some cases went as little as a few pounds over their agreed overdraft limit. The OFT argued that this did not reflect the true cost to the bank and that customers deserved at least a partial refund of such charges. Millions of customers (of which I am one) had lodged claims against the banks to recover these charges, amounting to several billion pounds claimed.

The High Court and the Court of Appeal previously ruled in favour of the OFT, leading many customers to be hopeful of a refund of hundreds or even thousands of pounds. The Supreme Court was widely expected to follow suit and endorse the ruling of these senior courts that the banks should be made to pay out but in a surprise decision announced today they completely reversed the position ruled in the lower courts. The Supreme Court also refused the right of further appeal to the European Court of Justice.

I share the disappointment of many people who have had their claims frozen for several years while the legal process was underway. No doubt there will be some who chose to take up individual court actions against the banks but these are now unlikely to succeed. It also remains to be seen whether individual banks will chose to make offers of settlement to those customers that have complained.

Either way, the Supreme Court will be seen as having come down on the side of the much hated bankers and against the rights of consumer groups and customers. Its credibility has not been enhanced by this decision.


November 25, 2009 - Posted by | National


  1. It is difficult to see how this is not some kind of a stitch up involving the sticky fingers of the government.
    These sorts of charges can never be seen as fair. In fact they could be more easily be seen as an attack on those in society , who by the fact that they have less money than others , are then penalised unfairly by the banks.
    Perhaps the Tories might adopt a policy that by an act of parliament , could limit these charges to be more in line with the ‘offence’

    Comment by howard thomas | November 25, 2009 | Reply

  2. I am still confused as to what the banks have done wrong in this case. An overdraft is an agreement between you and the bank – if you breach the agreement penalties should be paid and if you agree them when you sign up for the account then the agreed penalties should be paid.

    I see in plenty of contracts there are punative clauses for breaching terms as these represent incentives to meet deadlines and provide compensation to the offended party.

    Banks are not a social service and are a business, I see no problem with the ruling.

    Comment by Chris | November 25, 2009 | Reply

    • I agree, a contract freely entered into is a contract. But, no contract is valid that seeks to permit one party to levy a penalty charge. Only the state can levry a penalty. Charges in the commercial world have to reflect actual costs or losses. And this is the rub. The banking cartel makes a huge profit from these charges, levied in most cases on those at the limits of society, and uses this money money to subsidise free banking for wealthier people or those who are better able to manage their affairs. It seems a grotesque arrangement to me. Surely it would be right and proper to levy proper charges on all bank customers using the banking service of managing a customers account and to pay them interest at a reasonable rate on credit balances? This would provide a price signal that would enable customers to compare banks and shop around. Clearly the cartel wouldn’t like this as it would introduce competition to retail banking.

      Something must be done about the banks, and if the Tories get in it’ll be up to them. Gordon is hopeless and will not have the courage, let alone the ability, to do anything about them.

      As it happens I don’t think that this is the end of this row. I have great faith in the power of the internet to enable the poor bloody citizen to combine over distance and time to challenge the power of the corporatists and cartels, like the banks. This is what happened previously. Plus the Supreme Court’s ruling seems to refer to the ability of the OFT to set what is fair and to challenge the banks. It might be that individuals are still able to take the banks to court on the basis of the illegality of levying penalty charges.

      Comment by Lola | November 25, 2009 | Reply

      • So does this now set a precedent that contracts can set penalty charges? I’m amazed no-one is talking about this element of it since it would be huge disaster for contractual law – imagine how gleefully every company under the sun will start charging us for late payments.

        I’m amazed no-one’s talking about that part, so I guess it doesn’t set a legal precent?

        Comment by Met | November 26, 2009

      • Well parties to a contract can sue for breach – it’s a similar principle, except that convention is established whereby exceeding your overdraft limit is a material breach, and the bank’s remedy is, instead of rescinding the contract agreement (which would be worse for the customer by the way) to charge a set fee.

        Comment by Neil | November 26, 2009

      • Let me demonstrate what the banks are doing wrong so that you can understand it a bit better.

        Many people, like me use online bankng. A wonderful system where you can look on a web page and see your up to date account details. This allows many people to see what money they have in their account and their available funds to spend.


        Online banking fuels the greed of the banks because of the out of date way they allow merchants (suppliers) to trade with them.

        When you make a payment with a debit card to a company, you would expect that the amount paid would be taken from your account, or at the very minimum reserved on your account. There is a term “floor limit” that sometimes masks the amount you paid and allows the banks to lull you into a false sense of security. The floor limit effectively allows large organisations to get a blanket authorisation for varying amounts from the banks through the debit card handlers – Visa debit, Maestro etc. By using this method, there are occasions wher you think you have enough money in your account, but realistically it has simply not been updated correctly with payments that are mounting up in the background.

        So when you look at your on-line system what you see on the screen is not the fully reflective of your financial situation and there is a danger that you can overspend and fall into overdraft and then the penalties kick in.

        I have been told that this trading method used by the banks has always been this way and won’t change in the near future.

        I think this is ridiculous and I doubt that the supreme court were made aware of this crucial shortfall. Especially in this age of technology where the means to prevent this happening is available.

        Why don’t the banks take all of their lovely penalty charge earnings and do something about it? Because that means that they would decrease their earnings from bank charges by showing people what is really going on in their bank accounts.

        And don’t get me started about charging you for an overdraft for a charge already applied which made you go into overdraft in the first instance!!!

        Licence to print money comes to mind.

        Comment by Garry | December 4, 2009

  3. Chris: The point is that the banks generally claim that the charges are an administration fee to cover the cost of arranging the customer an emergency unauthorised overdraft, not that they are a punitive charge to teach the careless borrower a lesson.

    The campaigners’ argument is that the charges are in fact a disproportionate penalty fee that constitutes an unlawful unfair term in a consumer contract in breach of the regulations.

    Comment by davew | November 26, 2009 | Reply

  4. Part of the overall problem is the increasing willingness of people to run to the courts (backed up “lobby groups” and “consumer bodies”) [how come they don’t represent me as a consumer?] when something happens that they don’t like.

    Customers of banks freely entered into these contracts. They benefit from free banking either a) when they are in credit or b) when they have an authorised overdraft. I regularly run an overdraft and pay through the nose for it, but equally if I didn’t have that agreement, why should I be able to borrow money at will from the bank. It’s effectively going to Tesco for your weekly shop and saying “don’t worry, I’ll pay you next week”.

    I think the Court has taken the view that sanctity of contracts is critical to ensuring long-term business competitiveness. Unlikely that our judges have bowed to political pressure – cantankerous old bunch that they can be

    Comment by Charles | November 26, 2009 | Reply

  5. If you think that the credibility of an institution of justice depends on its pandering to public opinion, then you are right. But it doesn’t, so you are wrong.

    You ought to bear in mind that Supreme Court Justices are still the ‘historic’ Lords of Appeal in Ordinary in all but name. In fact, this was one of the last cases to be heard by the old style House of Lords.

    So what was your point again?

    Comment by allthemorereason | November 26, 2009 | Reply

  6. This really is a perverse judgement that flys in the face of both commonsense and justice .
    Let us say the banks put in their terms and conditions that should you go overdrawn by £ 1 then the penalty charge would be £ 50,000 , would that be lawful ? The main problem is not a penalty charge of £25-£40 but the way that these charges escalate and one penalty charge can lead to charges of £ 150 – £ 200 in one calendar month ( which will cover 2 bank charging periods ) and make customers then very likely incur further penal charges in following months .

    Comment by Mark Senior | November 26, 2009 | Reply

  7. I would also make the point that in the real world a bank account contract is hardly “freely entered into”. Have you tried running your life without one? We have laws and rulings to stop people having their water cut off, and water companies too are capitalist organizations

    Comment by Jonny Morris | November 26, 2009 | Reply

  8. Sadly this decision has legalised loan sharking . No matter how usurious the the interest rates or penalties a loan shark applies , all they have to do is to produce a copy of their terms and conditions signed by a desparate borrower and they will be upheld by these judges as legal .

    Comment by Mark Senior | November 26, 2009 | Reply

  9. The banks have already paid back many claims for bank charges. Does this not mean that they have accepted that customers have been overcharged and does this not set a precedent for the remainder of us who had our cases put on hold?

    Comment by Wendy Cook | December 9, 2009 | Reply

  10. the oft states that bank charges should reflect the cost to the bank for administering them,estimates put it at £2.00,charges should not be a profit maker,its a toatl conflict of interest to start with,banks will not show anyone the true costs,there would be hell on,why will banks not show the true costs,why are they not made to do so,its a joke and the biggest con trick in history,in fact its so laughable where can i get some action

    Comment by chris | December 18, 2009 | Reply

  11. supreme court,bankers,government,ALL THE SAME,they all p in the same pot,no wonder we all got screwed over,its as simple as abc,banks couldnt afford it so the powers said no,,,,,,,,,,,!

    Comment by chris | September 13, 2010 | Reply

  12. ps… whistleblower on youtube or bank.moonfruit, on bank charges,that will give you all the information you need as to how much bank charges actually cost….!

    Comment by chris | September 13, 2010 | Reply

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