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As the fight to reclaim "unfair" bank charges goes to court, we look at the history of the dispute What bank charges are we talking about?
The court case revolves around the fees levied by banks when an account goes over its agreed overdraft limit or a cheque or direct debit is bounced. Most banks charge around £25-£30, but some charge even more, and do so each time you go further overdrawn.
Some customers have managed to rack up thousands of pounds in fees, falling deeper into the red as more and more charges are applied.
The fees became a hot topic at the beginning of last year as consumer groups encouraged customers to challenge the fees and ask banks and building societies to repay any charges they had already handed over.
Why was there a consumer revolt?
In 2006, the Office of Fair Trading (OFT) announced that default payments on credit cards were illegally high. It said typical charges of £25 or more for late or missed payments did not reflect the administration costs for card providers, and told them to reduce charges to a maximum of £12. It also suggested that it might introduce a similar rule for other types of credit, including overdrafts, and last year it launched a formal investigation.
The OFT's ruling on credit cards inspired many people who had not previously considered the legality of bank charges to take a stand against their bank. The campaign gathered pace as more customers successfully reclaimed the fees.
Did many customers write to their banks?
They certainly did. Banking complaints made to the Financial Ombudsman Service (fos) soared by 47% in the year ending March 31 2007, and its consumer helpline received around 3,000 inquiries a day about bank charges.
Also, more than 3 million people have downloaded specimen bank charge letters from campaigning websites, including the Guardian's own template letters.
How did the banks react?
In many cases the banks have simply coughed up, reimbursing customers for the amount they claimed without argument. Some people have received tens of thousands of pounds back in reclaimed bank charges without having to take legal action. In some cases, however, they have subsequently had their accounts closed and been told to bank elsewhere.
Other cases have gone to the small claims court, but banks have not turned up to represent themselves and judges have tended to rule in the customer's favour. In a couple of cases involving Lloyds TSB, the judge found in favour of the bank, but because these were county court cases they did not set a precedent for subsequent hearings.
Why the test case then?
Seven banks and one building society have agreed to take a test case to court to clarify the legal position regarding bank overdraft fees. The eight organisations involved in the test case - Barclays, HSBC, Lloyds TSB, the Royal Bank of Scotland, HBOS, Abbey, Clydesdale and Nationwide building society - represent 90% of the current account market. They say they believe the fees are "fair and clear", but that consumers and banks need clarity on the issue.
The OFT says it disagrees with the banks on a point of principle: it says the unfairness rules of the Unfair Terms in Consumer Contract Regulations apply to overdraft charges; the banks say they do not. The OFT hopes a test case will establish that the rules do apply.
Since the test case was announced last summer the Financial Services Authority (FSA) has allowed all banks and building societies to sit on overdraft fee claims from consumers, pending the court's decision.
What happens next?
If the court finds in favour of the banks, it will mean consumers will no longer be able to ask for a refund on the grounds of the charges being unfair or unlawful. Those who have already been paid, however, will be able to keep their money.
If the ruling goes in favour of the OFT, both it and the FSA will have to decide what the banks should do next. The consumer group Which? says it hopes banks will simply refund the money that they know consumers have paid in charges over the past six years, without individuals having to write in. But consumers may have to continue making claims.
How long will it take?
The hearing is expected to take several days with the judge making a ruling by Easter. However, an appeal is likely to follow and Which? says it could be next year before the issue is settled.
What happens to consumers who haven't yet got round to complaining?
According to Which? they should carry on downloading letters and writing to their banks to make sure their complaint is in the system. But nothing will happen until the test case is resolved.
Q&A: Bank charges, Guardian Unlimited, 14/01/08
limit or a cheque or direct debit
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