Watchdog drops legal battle against banks' £2.6bn-a-year charges

Published on Tuesday 22 December 2009 21:56

THE Office of Fair Trading yesterday pledged to continue its fight with banks despite giving up its legal battle on unauthorised overdraft charges.

The trading watchdog said it would not be taking any further legal action against the banks over the charges after the Supreme Court ruled against it last month.

But it still had "significant concerns" about the personal current account market, and planned to discuss a range of options, from voluntary measures to legislative change, with banks and consumer groups.

It added that despite some recent and planned improvements by banks around transparency and customer switching, it believed fundamental changes were required for the market to work in the best interests of consumers.

Banks earn around a third of their revenues for personal current accounts from unauthorised overdraft charges, which bring in around 2.6 billion a year.

But the OFT said the charges were "difficult to understand, not transparent and not subject to effective consumer control".

Customers who go into unauthorised overdraft or breach their agreed limit can be charged as much as 35 for a single bounced payment, although campaigners claim the actual cost to the banks could be as little as 2.50.

John Fingleton, chief executive of the OFT, said: "We remain deeply concerned that the market for personal current accounts is not working well for consumers and does not give banks sufficient incentives to compete.

"We are committed to securing significant changes to unarranged overdraft charges going forward, whether through voluntary agreement with the banks or by other means."

But he conceded that following the Supreme Court's ruling that the charges do not come under the OFT's regulation under unfair contract rules, any investigation into the fairness of the charges would have "very limited scope and low prospects of success".

The OFT will report on its progress on discussions with the banks by the end of March.

The British Bankers' Association welcomed the OFT's decision not to pursue further legal action, and said the banks would continue to work with it in relation to the concerns it had raised as part of its market study.

The government has also indicated that it wants an overhaul of the system to ensure unauthorised overdraft charges are made fairer for consumers.

It said it would work with the OFT and Financial Services Authority to create a new framework for the charges, but warned it would take action if a voluntary agreement with the banks could not be reached.

But yesterday's announcement is a further blow for consumers who had tried to reclaim charges and now have little prospect of getting their money back.