24/04/2008 - Bank charges can be assessed for fairness under the Unfair Terms in Consumer Contracts Regulations 1999

Andrew Smith J held today that the terms relating to the unarranged overdraft charges levied by eight of the UK's largest personal current account providers - Abbey National, Barclays Bank, Clydesdale Bank, HBOS, HSBC Bank, Lloyds TSB Bank, Nationwide Building Society and The Royal Bank of Scotland Group (‘the Banks') - are not exempt from an assessment as to fairness under Regulation 6(2) of the Unfair Terms in Consumer Contracts Regulations 1999.

The Judge accepted the Banks' submission that the charges levied in respect of unarranged overdrafts were not penalties at common law. The Judge also accepted that Banks' relevant terms and conditions were in, or largely in, ‘plain intelligible language' within the meaning of Regulation 6(2) of the 1999 Regulations.

However, the Judge accepted the OFT's submission that if a bank received and declined a payment instruction from a customer that would, if granted, have caused the customer's account to go overdrawn, the bank would not have supplied any ‘service' in dealing with the instruction within the meaning of the 1999 Regulations. The Judge also accepted that the unarranged overdraft charges levied by the Banks could not be regarded as the ‘price or remuneration' in exchange for any service supplied. The Judge therefore held that the terms in question did not fall within Regulation 6(2) and were not exempt from an assessment of fairness under the 1999 Regulations. This means that the OFT will be able to continue its investigation into the fairness of unarranged overdraft charges.