OFT can assess bank charges for fairness, rules Court of Appeal

The banks' standard terms, which detail the charges, are not part of the core or essential bargain between customers and their banks, the Court said. Customers therefore do have protection under the Unfair Terms in Consumer Contract Regulations for these terms.

The case began in 2007 when the OFT asked the High Court for a declaration on the law's application to bank charges. Its application was opposed by Abbey National, Barclays Bank, Clydesdale Bank, HBOS, HSBC, Lloyds TSB, Royal Bank of Scotland Group and Nationwide Building Society.

The High Court ruled in the OFT's favour. The Court of Appeal dismissed the banks' appeal against that ruling yesterday.

The court was not asked to decide whether the charges themselves were unfair, but whether the OFT was entitled to assess their fairness under the Regulations. However, the OFT has already said that it has concerns about all the banks' terms and conditions imposing these charges. Unless the banks appeal successfully to the House of Lords it is possible that some of them will be found to be unfair.

The Regulations are designed to protect consumers from unfair terms in standard form contracts. The banks tried to rely on an exception in the Regulations which prevents the OFT or other parties from assessing the fairness of a term which relates to "the adequacy of the price or remuneration, as against the goods or services supplied in exchange", provided the term is in "plain and intelligible language".

In other words, the Regulations are not designed to interfere with parties' freedom to agree on the essential terms of their contract. But they are designed to protect consumers from unfair terms in standard form contracts which they did not negotiate or, in most cases, even read.

The banks said the charges were part of the core or essential bargain between them and their customers. The Court of Appeal disagreed.

Giving judgment, Sir Anthony Clarke said that the charges were not bargained for directly and only arose in exceptional circumstances. The OFT could therefore assess their fairness.

"It seems unlikely in the extreme that the typical customer reads them," he wrote. "In such circumstances, where the majority of the terms are not bargained directly between the parties and where it is not straightforward to identify the 'price or remuneration' for the package of banking services, it seems to us that […] it is necessary to require a narrow definition of 'price or remuneration'."

In a statement, the British Bankers' Association said that Thursday's ruling will be appealed.

"The court has not said fees are unfair just that they can be looked at to see if they are fair or not," said the statement. "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 Appeals decision," it said. "The banks will work with the OFT to ensure the next stages in the test case process are progressed as quickly as possible."

Richard Dickman, a dispute resolution specialist with Pinsent Masons, the law firm behind OUT-LAW.COM, said that the ruling could bring an end to free banking in the UK.

"If the OFT decides that these charges were unfair, the banks could face substantial compensation claims from customers," he said. "If that happens, the banks may have to find other ways to make up for the lost revenue, including charging for current accounts."

Dickman added that the ruling will have implications outside the banking sector.

"Any supplier of goods or services to consumers who has standard terms, including, for example, disproportionately high charges for ancillary services, could find that they cannot rely on those terms," he said.