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Banks told to explain charges
A High Court test case kicked off this week to determine whether hundreds of thousands of current account holders stand a chance of receiving refunds for expensive bank charges over the last six years
The hearing, brought by the Office of Fair Trading (OFT), that seeks to establish once and for all whether bank charges of up to £39 a time are illegal - as many legal experts believe - started on Monday.
During the case, which is expected to last around eight days, the banks will be expected to justify their fees for exceeding overdraft limits, bounced cheques and returned payments.
The OFT argues that they should not be allowed to charge more than the cost of administration to deal with a customer who goes overdrawn, for example.
Liberal Democrat Shadow Chancellor, Vince Cable said: "Banks are not charities and it is perfectly acceptable for them to levy charges when customers breach the terms of their bank accounts. However, trying to pretend that it costs upwards of £30 to return an unpaid direct debit is laughable.
"As has already happened at many small claims courts throughout the country, we can only hope that the High Court finds that these bank charges are indeed illegal.
"Customers must continue to be able to claim back unfair charges from previous years."
Last year banks paid out £300 million to customers who complained about paying high charges.
But since it was announced that the test case was to go ahead in July last year, all claims have been put on hold by banks, the Financial Ombudsman and small claims courts.
Legal experts suggest a cap will be placed on how much banks can charge to reflect their administrative costs when dealing with customers going over their overdraft limit.
This is just what happened when the OFT challenged the credit card companies, and the limit for late payments was set at £12.
David Kuo at financial website Fool.co.uk, said: "Bank customers may not benefit nearly as much as they think if the OFT wins its arguments in court. A win could result in banks refunding only the difference between charges set by the regulator and the fees in dispute. This is likely to see bank customers being offered lower levels of compensation."
A victory for the OFT could mark the end of free banking, according to experts. Banks in Europe charge for each transaction - a model that could be copied in the UK.
* Written by Holly Thomas. Holly is Deputy Personal Finance Editor at the Daily Express and Sunday Express. Holly's views represent her own opinions and are for general information only. Always seek independent financial advice.
