Banks blame OFT for 'torrent of refund claims'

Banks blame OFT for 'torrent of refund claims'

High street banks today defended their practice of charging for unauthorised overdrafts and blamed the Office of Fair Trading for the "torrent" of refund claims received from dissatisfied customers.

On the first day of a test case over the legality of the fees, the banks argued that the rules on consumer contract fairness do not apply to the charges they impose for unauthorised overdrafts.

The fees, often in excess of £30, are charged when a customer goes over an agreed overdraft limit, or has a cheque or direct debit bounced.

The banks are represented by more than 50 lawyers, and each bank's team will set out its case in turn during the hearing, which could last several weeks.

Laurence Rabinowitz QC, a lawyer for Royal Bank of Scotland, was the first to stand up.

He told Mr Justice Andrew Smith that the "flood of claims currently engulfing the court system" was partly a result of "ill-judged comments" made by the OFT.

In a ruling in 2006 that said credit card providers were charging illegally high fees for missed and late payments, the OFT said the principles were "analogous to other default charges in consumer contracts, for example in agreements for bank overdrafts".

The comments were seized upon by campaigners who urged consumers to contact their current account provider and tell them they believed the fees were unlawful.

Millions of template letters were downloaded from websites, including guardian.co.uk,.....continued below

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and with the banks refusing to contest cases customers were able to reclaim their money - sometimes thousands of pounds worth of fees.

Rabinowitz said the comment was "unfortunate" because it was made before the OFT had even begun its ongoing investigation into current account overdraft charges.

It became obvious that, "a hornet's nest having been stirred", the matter should go to court for a decision on the issues, he added.

The case, in the high court's commercial division, has been jointly brought by the OFT and seven leading retail banks and the Nationwide building society.

It is being held in the International Dispute Resolution Centre in London, because the huge number of lawyers involved made a high court hearing impossible.

As the legal teams filed in they were serenaded by the folk group Oystar whose song, I Fought the Lloyds, describes the singer's success in reclaiming charges from his bank.

The song, which has been championed by websites including the Moneysavingexpert.com site, made it to number 25 in the charts at the weekend.

guardian.co.uk © Guardian Newspapers Limited 2008