Unarranged overdrafts - test case1
27/10/2009

In this section you will find information on the events of the court case presented in reverse chronological order, with the most recent event listed first.

FSA offers new waiver to firms on complaints handling
22 July 2009

The FSA issued a new waiver on this date, putting existing claims on hold. The waiver will be in place for 6 months from Wednesday 27 July 2009. BBA statement:

"The Banks welcome the FSA offering a new waiver while they continue to move the test case forward in order to achieve legal clarity. Banks continue to ask County and Sheriff Courts to keep cases relating to unarranged overdraft charges on hold until the test case process is concluded. We continue to work closely with the OFT, the FSA and the Court to help bring a conclusion to the test case as soon as possible." 

Appeal hearing starts in the House of Lords
23 June 2009

On this date the appeal hearing began.

The appeal was not about whether or not the terms of unarranged overdrafts are unfair. This will be decided by the Court in due course, subject to the outcome of the appeal. The appeal is about the fairness test in the UTCCRs. Banks do not think this test applies to unarranged overdraft charges. Banks continue to believe unarranged overdraft charges are fair. 

OFT streamlines its 'fairness investigation'
3 April 2009

The OFT has been conducting its own investigation into the fairness of unarranged overdraft charges since April 2007.

On 3 April 2009 the OFT said it would streamline its investigation into unarranged overdraft charges by focusing on the terms of three banks in particular (Lloyds TSB, HSBC and Clydesdale). The aim is to progress the case in the shortest and most efficient way possible. The BBA said:

"This is the next step in the OFT's ongoing investigation into overdraft fees. The OFT believe that by looking at a representative sample of bank terms and conditions, the investigation process will be streamlined and shortened. The banks certainly welcome this initiative and we will continue to cooperate fully and constructively to the ongoing inquiry."

Banks are granted leave to appeal
1 April 2009

The banks were granted leave to appeal to the House of Lords and committed to progress the appeal as swiftly as possible. 

Court of Appeal's decision
26 February 2009

The Court of Appeal ruled that bank charges were assessable for fairness under the UTCCRs.

The Court did not consider whether the charges were actually unfair. That is a question that can only ultimately be decided by the Courts. 

Following the Court of Appeal's decision the Banks decided to appeal to the House of Lords because (a) there is limited guidance from case law on whether and how the UTCCRs apply and (b) they continue to believe that the UTCCRs do not apply to these types of charges, where the customer is using and paying for a service that is being offered. The BBA said:

"The court has not said fees are unfair just that they can be looked at to see if they are fair or not. The banks continue to believe that the Regulations do not apply to these type of charges. The banks' aim throughout this process has been and remains to achieve clarity and certainty for customers. The banks will apply to the House of Lords for permission to appeal the Court of Appeal's decision. The banks will work with the OFT to ensure the next stages in the test case process are progressed as quickly as possible." 

The Court gave its judgment on outstanding terms (which were not ruled on in its October judgment)
21 January 2009

Of the terms under consideration of the three Banks concerned, the court found that all except one term of one bank were incapable of being penalties. The term in question was held to prohibit customers from using a card to go overdrawn. This does not mean that it is a penalty. The BBA said:

"The OFT and the Bank in question are together considering how best to address any remaining issues in relation to penalties. Overall, the judgment is positive for the Banks which are keen to move swiftly to the next phase of the test case." 

Court of Appeal hearing begins
28 October 2008

The banks appealed on the question of whether the unarranged overdraft charges examined by the Court in January 2008 could be assessed for fairness. The Court heard the appeal from 28 October-5 November.

The Banks appealed because they believe unarranged overdraft charges are fair and the fairness test in the UTCCRs does not apply to these types of charges.  

High Court issues judgment on 2nd stage of Test Case process
8 October 2008

To explain the 1st and 2nd stages of the process:
The first stage of the test case process was heard by the Court between 17January and 8 February 2008 and dealt with certain preliminary issues of legal principle in relation to the terms and conditions used by the Banks at that time. On 24 April 2008 the Court issued its judgment on this first stage of the test case process. It decided that the current charges cannot be penalties, but that they can be assessed for fairness under the UTCCRs.

The second stage formed a hearing which took place on 7, 8 and 9 July 2008 when the Court was asked to consider whether terms and conditions previously used by the Banks are capable of being penalties. The Court was also asked to make a ruling on whether terms and conditions previously used by the Banks are assessable for fairness.

On 8 October 2008 the Court issued its judgment on this second stage of the test case process. The Court's decision meant that nearly all (and, in the case of most Banks, all) of the Banks' charges levied under previously used terms and conditions are incapable of being penalties. The Court did not, at this stage, make its order on whether the Banks' previously used terms and conditions are assessable for fairness under the UTCCRs. The BBA said:

"This is a positive decision for the banks. The Judge had already decided that current terms and conditions could not be penalties so went on look at terms and conditions banks had in the past. Today he found most are not penalties and has asked for more information on the others. The question of penalties was one of the claims made by the Office of Fair Trading which triggered the initial court case. Now we have had this judgment we are keen to move on to the next stage as quickly as possible." 

FSA continues its waiver to firms
22 July 2008

The FSA confirmed its continuation of the waiver agreements for a further six month period. You can read their press release here: http://www.fsa.gov.uk/pages/Library/Communication/PR/2008/073.shtml 

Courts consider whether terms previously used by Banks are assessable for fairness
9 July 2008

From 7 to 9 July the High Court held a hearing about whether or not terms and conditions banks had in the past could be assessable for fairness. The BBA said:

"April's judgment looked at the banks' current terms and conditions and ruled these fees are not penalty charges. The Judge also said the banks' current terms are in "plain and intelligible" language, or substantially so, and that unarranged overdrafts are part of the essential services banks provide to their personal current account holders.

"The judge will now consider, after hearing evidence, the terms and conditions relating to unarranged overdraft fees which the banks have used in the past. We are working closely with the courts and the OFT to bring a conclusion to the test case process as quickly as possible."

"The judgment was handed down on 8 October 2008 (see above).

"The April judgment decided that the banks' current terms and conditions that relate to these fees are not 'penalty charges', that these terms are in "plain and intelligible" language, or substantially so, and that unarranged overdrafts are part of the essential services banks provide to their personal account holders. 

Banks granted permission to appeal
23 May 2008

The Court gave permission to the Banks to appeal April's Court judgment that unarranged overdraft fees are assessable for fairness under the Unfair Terms in Consumer Contracts Regulations 1999 ("UTCCRs"). The BBA said:

"The court also considered the terms could be assessed for fairness under the UTCCR regulations but that did not mean that the charges were unfair. The banks are to appeal this part of the judgment as they consider these types of fees are fair and the regulations do not apply to them. However, it is also in the public interest to have full clarity and it is only the Court which can make the final decision on whether the charges are fair."

High Court issues judgment on 1st stage of Test Case process
24 April 2008

The Banks welcomed the judgment that the Court issued, which marked the first stage in the test case process.

The Court decided (subject to appeals) that the Banks' current terms and conditions relating to unarranged overdraft charges are not unenforceable penalties but are assessable for fairness under the UTCCRs.

The Banks were pleased that the Court had agreed that their current charges are not unenforceable penalties.

In relation to the UTCCRs, the Court emphasised in the judgment that the question of whether the Banks' charges satisfy the fairness requirement of the UTCCRs had not been determined by the Court. That is a question that can only ultimately be decided by the Court and not, for example, by the OFT.

The Court also reached the following conclusions:

• Unarranged overdrafts are one of the essential, real and identifiable services which the Banks provide to their personal current account customers;
• As a matter of legal analysis the terms and conditions of many of the Banks accurately reflect the fact that when a customer tries to make a payment without sufficient funds or an arranged overdraft, the customer is requesting an unarranged overdraft; and
• The Banks' current terms and conditions are in "plain intelligible language" but the court found that, in "certain specific and relatively minor respects", the current terms and conditions of some Banks (namely Abbey, Barclays, Clydesdale and HBOS), were not. 

Hearing commences at the High Court
17 January 2008

The first stage of the test case process was heard by the Court. It dealt with issues of legal principle about banks current terms and conditions.

The Court considered the following primary issues:

• Whether the terms imposing charges were subject to the test of fairness contained in the UTCCRs or whether they fell within exceptions provided by the UTCCRs meaning the fairness test could not apply; and
• If the relevant terms imposing the charges were capable of amounting to a penalty at common law.

Banks and OFT decide to go to Court
27 July 2007

Banks and the OFT decided to go to Court to establish the law on unarranged overdraft charges. 

OFT launches fairness investigation
April 2007

The OFT launches its investigation into the 'fairness' of unarranged overdraft charges.