Banks launch overdraft bid in the Lords

A LEGAL case to determine whether banking overdraft fees can be challenged on grounds of fairness kicked off in the House of Lords yesterday, with seven banks and one building society fighting to overturn an earlier ruling against them.<br /><br />The lenders are contesting a judgement by the Court of Appeal that charges imposed by the banks on overdrafts can be disputed on grounds of fairness.<br /><br />If their appeal is unsuccessful, the Office of Fair Trading (OFT) will decide if the terms are fair or not, with around one million claimants waiting to see if they can reclaim their charges. Should the OFT decide the charges were unfair, banks would stand to lose out on around &pound;2.5bn of income accrued each year from one-off overdraft charges.<br /><br />The OFT would also set a &ldquo;fair&rdquo; level for overdraft fees, which would then be used to determine the extent of compensation paid to claimants.<br /><br />The legal battle began two years ago, when the banks and the OFT decided to take the matter to court, as banks faced claims for the return of charges by disgruntled customers.<br /><br />Prior to the test case, banks had paid out around &pound;784m to claimants, but all new claims have since been frozen by the Financial Services Authority until the outcome of the current test case is known.<br /><br />The hearing will last for three days, but a final decision is unlikely to come until the autumn. The losing side will have the option of appealing to the European Court of Justice.<br /><br />HSBC, led by chief executive Michael Geoghegan, has already said that it could lose nearly &pound;370m on the case. Other banks involved include Barclays, Lloyds Banking Group, Abbey, Royal Bank of Scotland, Clydesdale Bank, as well as Nationwide, the UK&rsquo;s largest building society.