Test case agreed to resolve uncertainties of bank overdraft charges

United Kingdom

The OFT and certain Banks have agreed to bring a test case in the Commercial Court to resolve legal uncertainties surrounding the enforceability of unauthorised overdraft charges.

Such charges have been the subject matter of an ongoing OFT formal enquiry, a growing number of cases issued by account holders in court and a significant number of complaints by account holders provided to the Financial Ombudsman Service.   

The test case will seek to resolve whether contractual provisions entitling banks to levy these charges are unenforceable at common law or under the Unfair Terms in Consumer Contracts Regulations 1999. The Banks will seek to stay all current and future court proceedings against them regarding these charges until resolution of the test case. In conjunction with the test case, the FSA has agreed to waive rules in its Dispute Resolution Sourcebook (DISP) which requires firms handle complaints within prescribed timescales, for an initial period of a year or until resolution of the test case, if earlier.  The Financial Ombudsman Service has also agreed not to proceed with complaints received on these charges until resolution of the case.

The outcome of the test case will clearly have a significant effect on how both the court and the Financial Ombudsman Service view such charges for current account holders going forward.