Overdraft charges update


Last updated 23 February 2010


Summary

On 27 July 2007 the Office of Fair Trading (‘OFT’), seven UK banks, including RBS, and one building society (‘the Banks’) started a court case to resolve certain issues regarding the fairness and legality of unarranged overdraft charges.

This has become known as the ‘test case’. This is a complex area of law on which there was limited guidance; it was therefore important for the issues to be properly and fully examined.

On 25 November 2009 the Supreme Court ruled that the level of unarranged overdraft charges in personal current accounts cannot be assessed for fairness under the Unfair Terms in Consumer Contracts Regulations 1999 (UTCCR). The Court decided that current account customers receive a package of services and unarranged overdraft charges are part of the price paid by customers in exchange for that package. Earlier hearings established none of RBS’s terms was capable of constituting a penalty clause.

In our view, the judgment of the Supreme Court means that the level of RBS’s unarranged overdraft charges cannot be assessed for fairness under the UTCCR or challenged under the common law penalty doctrine. We do not believe that there is any other legal basis on which the level of these charges can be validly challenged

The Supreme Court verdict is availablle via www.supremecourt.gov.uk

On 22 December 2009 the Office of Fair Trading ("OFT") announced that it is ending its investigation into the fairness of overdraft charges under the UTCCR.

Customer complaints relating to unarranged overdraft charges were put on hold during the test case, as a result of a ‘waiver’ of the bank’s normal complaints handling process, granted by the Financial Services Authority (‘FSA’). On completion of the test case, the ‘waiver’ was lifted by the FSA. RBS has now written to all affected customers responding to their complaint.

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

Most county court cases were stayed pending the outcome of the test case, i.e. the county courts decided that no further action should be taken in respect of them at this stage, while the test case proceeded. These stays were put in place because the test case would give important guidance to the county courts as to how they should approach individual cases as a matter of legal principle. It is important that all county courts adopt similar approaches to ensure fairness between claimants. The county courts will decide at what point it is appropriate for stays to be lifted and determine whether, and if so, how, claims should proceed.

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

We are currently in discussion with the Financial Ombudsman Service to ensure that customers are dealt with on a consistent basis in line with the judgment from the Supreme Court. For further information and updates please check the FOS website.

3. What will happen next in the test case?

As the Supreme Court has found that the level of RBS's unarranged overdraft charges cannot be assessed for fairness under the UTCCR the test case proceedings are now concluded. The Supreme Court's decision is final.

4. What will happen to new customer complaints related to unarranged overdraft charges?

Any new complaints will be handled in line with the Bank’s normal complaint handling procedures. We will aim to provide a response to the complaint within 8 weeks of receipt.

5. 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.

6. 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: