Bank Charges - The Next Instalment

In Office of Fair Trading v Abbey National Plc &

Others [2008] EWHC 2325 (Comm), 8 October 2008, the Court found

that certain historic terms and conditions for personal current

accounts were not capable of amounting to penalties.

In Office of Fair Trading ?v- Abbey National Plc

& Others [2008] EWHC 875, the Court held (amongst

other matters) that a number of banks' existing charges could

not be penalties at common law. The banks subsequently sought

declarations that certain other historic terms and charges were

also not capable of amounting to penalties.

The focus of the OFT's investigation into bank charges has

been the unauthorised overdraft and returned item charges

("the Charges"), which banks levy in circumstances where

customers' accounts go overdrawn above an agreed facility level

or where cheque or direct debit payments are returned unpaid due to

a lack of funds in the customers' accounts. In a test case

brought against eight institutions, which together manage around

90% of the UK's personal current accounts, the OFT sought to

establish that the Charges made by the banks are not excluded from

an assessment of fairness under the Unfair Terms in Consumer

Contracts Regulations 1999 and that the contractual terms upon

which the banks relied to levy the Charges represented

unenforceable penalties at common law.

In relation to the question of whether or not the Charges were

exempt from an assessment of fairness under the regulations, the

Court found that the Charges were not exempt, but left over the

question of whether or not the Charges were actually unfair. This

point is subject to appeal by the banks.

As for the question of whether or not the Charges amount to

penalties, the OFT had argued in respect of the banks' current

Charges that customers who incur unauthorised overdrafts or who

give instructions for a payment to be made without being in

possession of the necessary funds are in breach of contract and

that the banks' decision to extend an "unarranged"

overdraft to the customers simply represents a waiver of that

breach. The Court, in its April 2008 judgment, concluded that

customers are, in fact, under no contractual commitment to avoid

unauthorised borrowing. Since the Charges were not payable upon

breach of contract, the Judge concluded that they could not

possibly represent unlawful penalties. As a result, there was no

need for him to go on to consider whether the Charges were

extravagant or unconscionable.

The April 2008...