U.K. Banks Look to Supreme Court to Overturn Overdraft Ruling

By James Lumley

Nov. 25 (Bloomberg) -- Royal Bank of Scotland Group Plc, HSBC Holdings Plc and six other lenders are counting on Britain’s highest court to overturn a ruling that may allow a regulator to oversee fees charged on bounced checks.

The U.K. Supreme Court in London is scheduled to rule today on whether the Office of Fair Trading can proceed with a trial challenging the amounts banks charge when customers exceed limits on checking accounts.

Banks’ profit margins are under pressure as they face increased competition for customer accounts to fund lending, after wholesale credit markets seized last year. The U.K. Treasury said Nov. 3 that RBS, Britain’s biggest government- controlled bank, and Lloyds Banking Group Plc will ensure consumer account fees are “transparent and fair” in return for taxpayer support.

“If the OFT wins this week, it will then decide whether individual current account terms are in fact unfair,” Ed Crosse, a finance litigation partner at U.K. law firm Osborne Clarke said. “If the banks still have the appetite to challenge those decisions, they will need to do so in court and the matter could go all the way to the Supreme Court again.”

Lesley McLeod, a spokeswoman for the British Bankers’ Association, said her members hope the ruling will give them “legal clarity” about the fees.

Fees, Interest

British banks charge as much as 30 pounds ($50) and up to 30 percent interest to customers who bounce checks or spend more than they have in their account, according to data company Moneyfacts Group Plc.

The banks being sued are RBS, HSBC, Abbey National Plc, Barclays Plc, HBOS Plc, Clydesdale Bank Plc, Lloyds TSB Bank and Nationwide Building Society. The lenders and the OFT agreed to take the issue to court to clarify the law.

Tens of thousands of bank customers have written to lenders asking for the charges to be refunded. Thousands of them have lodged cases in the U.K.’s county courts, which hear smaller claims than the High Court. Those cases have been put on hold pending a definitive ruling.

Judges at both the High Court and the Court of Appeal have ruled overdraft fees are subject to laws regulating unfair terms in consumer contracts, allowing the OFT to continue its legal challenge.

To contact the reporter on this story: James Lumley in London at jlumley1@bloomberg.net.