HSBC Holdings Plc, Royal Bank of Scotland Group Plc and six other U.K. lenders won a court bid to
halt an antitrust regulator’s challenge to fees that lenders charge customers who exceed overdraft limits.
The Supreme Court, the highest court in Britain, reversed two earlier rulings that said overdraft fees are subject to laws regulating unfair terms in consumer contracts. The ruling may block the Office of Fair Trading from challenging whether the specific terms used by the bank are unlawful.
The London-based OFT said Banks earn about a third of their retail revenue from overdraft charges, citing a market study last year. Banks’ profit margins are under pressure as they face increased competition for customer accounts to fund lending, after wholesale credit markets seized last year.
“The banks may not be the most popular institutions in the country at present, but that does not mean that their methods of charging for retail banking services are necessarily unfair when viewed as a whole,” Justice Brenda Hale said in the judgment.
Supreme Court President Nicholas Phillips said that customers agreed to pay bank charges as part of the price of
having a current account. He said the fees “might still be open to assessment by the OFT” under consumer contract rules.
Corinne Gladstone, a spokeswoman for the OFT, said the regulator will review the ruling and make an announcement next month.
‘Stunning Victory’
Judges at both the High Court and the Court of Appeal had ruled overdraft fees are subject to laws regulating unfair terms in consumer contracts, allowing the OFT to continue its legal challenge.
“This is a stunning victory for the banks which will provide greater legal clarity going forward,” said Ed Crosse, a
finance litigation partner at U.K. law firm Osborne Clarke.
“Many commentators wrote off the banks’ chances of winning.” Shares in Barclays Plc and HSBC Holdings Plc, the U.K.’s two biggest banks by market value, climbed after the ruling. The five-member FTSE 350 Banks Index rose 0.3 percent to 5119.32 points at 11:15 a.m. in London trading.
“Overhanging the shares was the fact that there would have been quite a number of retrospective payments going back to 2001, perhaps even longer,” said Richard Hunter, head of U.K. equities at Hargreaves Lansdown Stockbrokers in London. The repayments could have run into “billions of pounds,” he said.
The British Bankers’ Association said its members will work with regulators to ensure that pending customer complaints are resolved quickly.
‘Real Concern’
We recognize this issue has been of real concern to a large number of our customers and we are pleased that this
decision now brings clarity for all parties,’’ the BBA said in a statement.
British banks charge as much as 30 pounds ($50) and up to 30 percent interest to customers who bounce checks or spend more than they have in their account, according to data company Moneyfacts Group Plc.
Tens of thousands of bank customers have written to lenders asking for the charges to be refunded. Thousands of them have lodged cases in the U.K.’s county courts, which hear smaller claims than the High Court. Those cases had been put on hold pending a definitive ruling.
The U.K. Treasury said Nov. 3 that RBS, Britain’s biggest government-controlled bank, and Lloyds Banking Group Plc will ensure consumer account fees are “transparent and fair” in return for taxpayer support.
‘Extremely Disappointed’
“Consumers, who have been waiting a number of years, will be extremely disappointed with this outcome,” Sarah McCarthy Fry, exchequer secretary to the U.K. Treasury. “It’s clear that in the past, banks were not thinking enough about their customers. That needs to change for the future.”
The banks sued in the case are RBS, HSBC, Abbey National Plc, Barclays Plc, HBOS Plc, Clydesdale Bank Plc, Lloyds TSB Bank and Nationwide Building Society. The lenders and the OFT agreed to take the issue to court to clarify the law.
halt an antitrust regulator’s challenge to fees that lenders charge customers who exceed overdraft limits.
The Supreme Court, the highest court in Britain, reversed two earlier rulings that said overdraft fees are subject to laws regulating unfair terms in consumer contracts. The ruling may block the Office of Fair Trading from challenging whether the specific terms used by the bank are unlawful.
The London-based OFT said Banks earn about a third of their retail revenue from overdraft charges, citing a market study last year. Banks’ profit margins are under pressure as they face increased competition for customer accounts to fund lending, after wholesale credit markets seized last year.
“The banks may not be the most popular institutions in the country at present, but that does not mean that their methods of charging for retail banking services are necessarily unfair when viewed as a whole,” Justice Brenda Hale said in the judgment.
Supreme Court President Nicholas Phillips said that customers agreed to pay bank charges as part of the price of
having a current account. He said the fees “might still be open to assessment by the OFT” under consumer contract rules.
Corinne Gladstone, a spokeswoman for the OFT, said the regulator will review the ruling and make an announcement next month.
‘Stunning Victory’
Judges at both the High Court and the Court of Appeal had ruled overdraft fees are subject to laws regulating unfair terms in consumer contracts, allowing the OFT to continue its legal challenge.
“This is a stunning victory for the banks which will provide greater legal clarity going forward,” said Ed Crosse, a
finance litigation partner at U.K. law firm Osborne Clarke.
“Many commentators wrote off the banks’ chances of winning.” Shares in Barclays Plc and HSBC Holdings Plc, the U.K.’s two biggest banks by market value, climbed after the ruling. The five-member FTSE 350 Banks Index rose 0.3 percent to 5119.32 points at 11:15 a.m. in London trading.
“Overhanging the shares was the fact that there would have been quite a number of retrospective payments going back to 2001, perhaps even longer,” said Richard Hunter, head of U.K. equities at Hargreaves Lansdown Stockbrokers in London. The repayments could have run into “billions of pounds,” he said.
The British Bankers’ Association said its members will work with regulators to ensure that pending customer complaints are resolved quickly.
‘Real Concern’
We recognize this issue has been of real concern to a large number of our customers and we are pleased that this
decision now brings clarity for all parties,’’ the BBA said in a statement.
British banks charge as much as 30 pounds ($50) and up to 30 percent interest to customers who bounce checks or spend more than they have in their account, according to data company Moneyfacts Group Plc.
Tens of thousands of bank customers have written to lenders asking for the charges to be refunded. Thousands of them have lodged cases in the U.K.’s county courts, which hear smaller claims than the High Court. Those cases had been put on hold pending a definitive ruling.
The U.K. Treasury said Nov. 3 that RBS, Britain’s biggest government-controlled bank, and Lloyds Banking Group Plc will ensure consumer account fees are “transparent and fair” in return for taxpayer support.
‘Extremely Disappointed’
“Consumers, who have been waiting a number of years, will be extremely disappointed with this outcome,” Sarah McCarthy Fry, exchequer secretary to the U.K. Treasury. “It’s clear that in the past, banks were not thinking enough about their customers. That needs to change for the future.”
The banks sued in the case are RBS, HSBC, Abbey National Plc, Barclays Plc, HBOS Plc, Clydesdale Bank Plc, Lloyds TSB Bank and Nationwide Building Society. The lenders and the OFT agreed to take the issue to court to clarify the law.
(News by Bloomberg)
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