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OFT Test Case

This page was written in August 2007, shortly after the announcement of the test case; it was updated in January 2008. Other pages in the News section give updates as the case slowly progressed through the Courts. For a reflection on where it all went wrong, written in January 2010 see Test case reflection.

On 27 July 2007, the OFT announced that it would be starting a test case against 8 banks. The case will centre on the issue of whether or not the charges imposed by banks when a customer breaches his or her overdraft limit are default charges arising from a breach of contract by the customer, or they are charges imposed for a service provided by the bank. Specifically, the OFT is seeking a "declaration that the Relevant Terms and/or Relevant Charges are not excluded from an assessment from fairness under the 1999 Regulations by reason of Regulation 6(2)(a) and/or (b) thereof."

The importance of this case is that, if the banks were to win, it would mean that the charges are not subject to the restrictions imposed in the Unfair Terms in Consumer Contracts Regulations and that the banks could essentially charge whatever they liked. Which is what they have been doing for years. See page "The Law".

If the OFT wins, it will not resolve the whole issue, because then the OFT will still have to prove that the level of the penalty charges is "unfair."

8 banks have signed an agreement with the OFT to allow this case to go ahead.

At the same time, the FSA and the Financial Ombudsman have announced that they are suspending all current complaints by bank customers about penalty charges until the test case is resolved.

In early August, the Deputy Head of Civil Justice wrote to all the Designated Civil Judges around the country (i.e. the most senior District Judge in each region) "inviting" them to put all bank charges claims on "stay." An invitation from the Deputy Head of Civil Justice is a bit like an invitation from the Mafia – probably best not to refuse it! Or even without such sinister undertones, if your boss "invited" you to make him/her a cup of coffee, you would probably think that your career would not be enhanced by refusing this invitation. So what has happened? Surprise, surprise, judges around the country are falling over themselves to put cases on stay as quickly as possible.

In many courts, cases are being put on stay the moment that the claim is issued, before the bank has even filed a defence. Cases are being put on stay even when the bank has filed a defence that does not use the arguments being considered in the test case. Cases are being put on stay for claims on business bank accounts which are nothing to do with the test case. So keen are the judges to put cases on stay, but they have not got time to read the cases themselves, they are getting court officers to put the claims on stay without the papers ever being put in front of a judge. It is my intention to challenge the stays on these cases.

My opinion on all of this is as follows.

If the OFT had launched this case 2 years when I, and others, asked them to do so, we would have applauded them for doing so. The fact that they are doing it now fills me with suspicion. The OFT is arguing only on the one issue of the question of a default charge versus a fee for a service. Even if the OFT wins, this will not be the end of the matter.

It appears to be a very cosy deal with the banks. The FSA and Financial Ombudsman and the British Bankers Association (BBA) were all involved in this deal but no consumer organisation was given any warning of the move. Press releases were issued by all these bankers' organisations with the same message which was that everything would be put on hold. The clear aim was to try to stop bank customers claiming for many months whilst the "test case" trundles slowly through the court system. This would be good news for the banks who have paid out hundreds of millions of pounds already this year. It will also get the OFT off the hook for a while.

It is bad news for bank customers. Over the past year, hundreds of thousands of bank customers have received refunds of penalty charge refunds because of the work done by the campaigners such as myself and those involved on other websites such as,, etc. Hundreds of millions of pounds have been paid out to claimants. Not a single penny of this has been because of the OFT. When the OFT made its half-hearted compromise deal with the banks on credit card default charges, it specifically ruled out doing anything about facilitating refunds of past charges. It will be exactly the same with current account charges. If the OFT wins its test case, it will do nothing to help people get back the billions of pounds plundered from their accounts in the past years.

Without the OFT test case, the campaigning groups would have succeeded in their campaign to stop banks imposing penalty charges because we were well on course to make life intolerable for the banks. The banks' administrative systems have been overloaded with these claims. With the exponential growth in claims continuing over the next few months, all the banking administration systems were in danger of collapsing.

Now the test case has given the banks a breathing space. This test case is very good news for the banks and bad news for the bank customers.

But we, as campaigners, are used to having a difficult fight. We will continue to assist and represent bank customers and we will continue the fight until we finally win.

The big conspiracy theory

For those who like conspiracy theories, how about this as an explanation of what is going on between the OFT and the banks.

The banks are massively powerful in this country. Successive governments have given banks privileged positions in society.

a) Remember Gordon Brown's famous five economic tests as to whether or not Britain should join the Euro single currency. One of tests was how it would affect the financial services industry. It said, "What impact would entry into EMU have on the competitive position of the UK's financial services industry?" No mention of how the Euro would affect manufacturing industry.

b) The government has been obsessed with PFI (private finance initiative). Under this scheme, private companies backed by the big banks, have essentially been given control of vast areas of what were previously public sector services. So now private companies build hospitals and schools and lease them to the public sector under 30-year contracts that guarantee the companies vast profits for a very long time. (If they make a cock-up, they just liquidate the company and the public purse has to pick up the pieces – see Metronet and the London Underground 1 billion farce.)

c) The government has been on a crusade to shut down post offices and force low income families into the arms of the banks. 20 years ago, a family could manage without having to have a high street bank account by using a Girobank account run through the post office network, have benefits paid into it and draw cash from their local post office etc. Now it is virtually impossible to function in modern society without a high street bank account.

I have no doubt that the banks are blackmailing the government and the OFT over this issue of penalty charges. What they will be saying to them is, "If you screw us on this issue, we will close down a third of all personal accounts because we will lose money on them. You will have to pick up the pieces. We will no longer cooperate on things like the Post Office Card Account. If there is a crisis in a second rate bank or hedge fund or similar, we will not do anything to save the financial system, we will just look after our own interests. And your public sector borrowing requirement will be impossible for you to finance without our cooperation." Faced with these threats, the government has decided that it has no option but to go along with whatever the banks demand.

So how will this latest move by the OFT end? Here are some possibilities:

1) The OFT "win" and the court rules that the charges are imposed as a result of breaches of contract and are, therefore, subject to the rules in fairness in the Unfair Terms in Consumer Contracts Regulations. But that is only the first stage. It does not mean that the charges currently being imposed by the banks are automatically unfair. The OFT will then have to put forward the case that they are too high and should be reduced. This could take them another 12 months to formulate their case. Meanwhile, all those individual cases that have been stalled in the court system will have to be pursued by the individual claimants. The banks will concede on these but they will have bought themselves a respite in the intervening period. Then, after a further 12 months, the OFT will reach a deal with the banks, set a maximum default charge of 12, will pay no heed to the fact that a bank might impose 15 charges in one day, but it will announce that the problem is solved. It will do nothing about helping get refunds for excessive charges prior to then.

2) The OFT put up a weak argument in court, make a total mess of their case, and the banks "win." But shortly thereafter, the OFT and the banks present a joint statement saying that nevertheless they have agreed to restrict future fees for this type of incident to a maximum of 12.

3) Before the test case makes it to court, the OFT and the banks announce a deal. Yes, you've guessed it, the banks agree not to impose fees of more than 12. There is no admission of anything having been wrong in the past. The legal issue of whether the charges are default fees or fees for a service will have been side-stepped. And the OFT and the banks will say what a brilliant, innovative deal this is as it is a win-win result for everybody. An OFT spokesman admitted to me in a telephone conversation that the test case might not get to court. I suggested to him that the OFT and the banks would do a deal prior to going to court and he admitted that the OFT would be obliged to consider any "undertakings" made by the banks rather than go to court.

If I had to put my money on any of the above scenarios, it would be on number 3, i.e. the OFT and banks do a deal and the test case does not get to court. Meanwhile, in any of the above scenarios, I and many others will continue the battle to get real justice.

(Update, January 08. Well, I was wrong in thinking that a deal would be done before they got to court. The case has started. From all accounts, the OFT barrister is not exactly a slick performer and he is irritating the judge at times. However, he is putting forward all the right arguments about why the terms in banks' contracts are a sham and should be subject to the UTCCR.)

See BBC News where OFT spokesman said that the case may not go to court!

For a copy of the agreement between the OFT and the banks on this issue, see OFT press release of 26 July. To download a copy of the agreement, see Agreement

To download a copy of the particulars of claim lodged by the OFT, see Particulars of Claim

For the OFT update on the case (October 2007), see Update

The OFT has refused to publish copies of the banks' defences on its website or to make them available in any other way for consumers. The OFT cites "confidentiality" reasons. However, Bob the Bankbuster is pleased to be able to make them available. To view them, click on the links below – the documents (pdfs) will download to your computer.

Abbey defence

Barclays defence

Clydesdale defence

Halifax (HBOS) defence

Royal Bank of Scotland (including NatWest) defence

Lloyds TSB defence

HSBC defence

What should anyone thinking about starting a claim do?

If you can afford to pay the upfront court fee now and wait for many months for the result, I would suggest that you go ahead with your claim. You will get into the queue and we may be able to get your case progressed through the system before the test case is resolved. In the worst case, you might have to wait until next year. Making the claim now is particularly important if you are claiming back charges to 2001. The maximum period allowed for a claim is 6 years. So, in September 2007, you can claim charges back to September 2001. If you delay your claim until early 2008, you will only be able to claim back charges from early 2002. You will have lost out forever on the charges made to your account in 2001.

If you really cannot afford to invest the court fee and wait, then you may be better waiting for a few months to see what happens in the courts in the mean time. Then reassess the situation in October or November. Contact me if you want more advice.

What should anyone who has a claim in the system be doing?

The main thing to remember is that you have not lost your claim. It is still there in the system and, at some point, the court system will have to deal with it.

Remember also that if your claim included the statutory 8% interest on top of the charges, your claim against the bank will continue to accrue interest at this 8% rate until they finally pay up. That is a very worthwhile interest rate to get on your money. So the longer the claim takes, the more interest you accumulate. If you can afford to wait for your money, this will be the best investment around!

For background reading on the Office of Fair Trading, see OFT.

For latest news, see various news stories, in particular test case House of Lords.

In this section

Test case


Test case reflection

For test case updates and latest news, see News index and follow links to stories

Published and promoted by Bob Egerton, TR2 4RS