Test case - overdraft charges

Update 24 April 2008

What is happening?

On 27 July 2007 the Office of Fair Trading, seven UK banks (including RBS) and one building society started a court case to decide the legality of unauthorised overdraft charges.

On 24 April 2008, the Court issued its judgment on the first part of the test case process. The full judgement is available at www.judiciary.gov.uk (PDF)

In summary:

  • The court decided that the current charges are not penalties.
  • The Judge also found that the banks' current terms are sufficiently clear to enable the typical consumer to have a proper understanding of them for sensible and practical purposes.
  • The Judge found that the terms and conditions relating to unarranged borrowing charges are assessable for fairness under the Regulations. He was not asked to rule on whether the banks’ terms were fair or not.
  • A further court appointment is scheduled for 22 May to agree the next stages of the test case.

As previously agreed with the Financial Ombudsman Service and the FSA, customer complaints relating to unauthorised overdraft charges will currently remain on hold. RBS will continue to ask Courts to keep cases relating to unauthorised overdraft charges on hold until the test case process is concluded.

1. What will happen to customer complaints about unarranged overdraft charges?

The FSA granted RBS a suspension of its obligations under the FSA's complaint handling rules whilst the Bank sought legal certainty on this issue. The Bank and the FSA are analysing the implications of the test case on customer complaints. We are not yet in a position to confirm what action the Bank/the FSA will take.

If you do complain about your unarranged overdraft charges, we will write to tell you that we have received your complaint and that we will record it on your file. When a final decision is reached in the test case, we will contact you as soon as possible to tell you how we will resolve your complaint. We will apply the decision in the court case to all complaints we receive.

2. What will happen to my court claim for a refund now?

Most county court cases have now been stayed, i.e. the county courts have decided that no further action should be taken in respect of them at this stage, while the test case proceeds. These stays have been put in place because the test case will give important guidance to the county courts as to how they should approach individual consumer cases as a matter of legal principle. It is important that all county courts adopt similar approaches to ensure fairness between claimants.

Once RBS has fully analysed the judgment and the further hearing has taken place, the question of what the county courts are likely to do in relation to specific stays will become clearer.

3. What will happen to customer complaints made through the Financial Ombudsman Service in the meantime?

All complaints made to the FOS have been put on hold pending the final determination of the test case. Further information about this is available from the FOS website - www.financial-ombudsman.org.uk

4. What will happen now that judgment has been handed down?

Further court hearings will be required before the test case process is concluded. The likely timetable for the next steps in the test case will be decided by the Court at a hearing which will take place on 22 May.

Once that hearing has taken place, RBS will be in a better position to know the likely timescales going forward.

5. Does the judgment deal with whether the charges are unfair?

No. The judgment simply address the extent to which the 1999 Regulations and the penalty doctrine are capable of application to the bank’s unarranged borrowing charges. The issue of how and in what way the 1999 Regulations and/or the penalty doctrine apply to those charges and (as a result) whether the charges were validly applied, can only be dealt with once the Court has ruled on the preliminary issue of whether the 1999 Regulations and/or the penalty doctrine apply at all.

Now that the Court has ruled that the 1999 Regulations do apply, there will need to be further phases of the test case to determine whether the charges are unfair

6. How long will it take until customer cases are finally resolved?

At this stage, it is impossible to say. Once the next hearing on 22 May has taken place, the timing of further phases of the test case and the likelihood of any appeal will become clearer

7. I am in financial difficulty – what can I do?

If you have financial problems, come and talk to us, and we will try to help you solve them. Depending on your circumstances, we could set regular or fixed repayments for debts, or we could reduce or suspend your repayments for a certain period.

If you have a more serious debt problem, we will work with you and put you in touch with organisations that offer help and advice to sort out your repayments and overcome your difficulties.

If you feel you need independent financial advice, we will be happy to direct you to someone, or to work with your chosen adviser.

The sooner you come to us, the more likely it is that we will be able to help.

8. Where can I find out more?

We will update this page with any developments in the proceedings.

You can contact us by calling on 0845 3030 442. Lines are open 9.00am-5.00pm Monday to Friday or 9.00am-1.00pm Saturday.

Alternatively you can find out more at the following websites: