Like water on a stone, slow processes work: bank penalty charges declared illegal. Update: *maybe* illegal

And to think it all started with a little note by a barrister in Guardian Money. Richard Colbey, wherever he is (probably hiding from angry bankers), wrote a short piece that suggested that credit card charges didn’t conform to contract law. That was 2004.

Years on, we have this:

UK banks could be forced to return billions of pounds of overdraft fees to consumers after a high court judge said the fees could be challenged by the Office of Fair Trading.

The strange thing: somewhere along the line, people stopped worrying about credit cards and focussed on banks. I don’t know quite where.

Mr Justice Andrew Smith agreed with the OFT that charges were covered under the Unfair Terms in Consumer Contracts Regulation 1999.

This paves the way for a further hearing in which the court will decide whether the charges are unfair and, if so, what a fair charge should be.

According to the OFT, banks receive up to £3.5bn a year in unauthorised overdraft fees – nearly £10m a day.

They charge up to £39 for a bounced cheque, standing order or direct debit, and critics of the system say this does not reflect the actual cost incurred by the banks, which could be as little as £2.

The ruling followed a test case in January between the OFT and eight banks and building societies.

I think it could be a while before we see banks pass on interest rate drops. Just a.. feeling I’ve got.

The intriguing thing is that the OFT hasn’t done this with credit card companies – are they next?.

But the bad news, BT customers, is that the earlier case against it failed. BT seems to have law on its side:

at Walsall County Court, District Judge Michael Ellery ruled the customers had been given proper notice of the charge, that it was fair and was a core term of BT’s contract. It is the fifth time BT has won a county court case over the charge.

This doesn’t stop it feeling wrong, very wrong, since there’s no processing involved in internet banking, for example. Paging Richard Colbey..

Update: as suggested by Mark in the comments, they’re only maybe illegal. So I changed the headline.

Update: in comments which got spam-trapped and then deleted, “Jojo” added:

The OFT have already done this with credit card companies – 2 years ago. Default charges were restricted to £12 (anything over that was to be automatically considered unfair and therefore illegal), though some people think this is still too high, especially as the actual cost to the companies is probably closer to £2 than £12.


  1. Just a quick clarification of your headline. The judgment doesn’t declare bank charges illegal. The court ruled that they were subject to the Unfair Contract Terms in Consumer Contracts Regulations. The OFT now has the authority to assess them against the regulations. Motley Fool has a good summary at

  2. Whatever the outcome I think either side will appeal and this will go on for maybe years
    before a satisfactory conclusion is reached.

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