Test case - Overdraft charges update

Last updated 18 November 2009

On 27 July 2007 the Office of Fair Trading (‘OFT’), seven UK banks, including NatWest, 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 is limited guidance; it is therefore important for the issues to be properly and fully examined.

The Banks believe that the charges are both lawful and fair and that the Unfair Terms in Consumer Contracts Regulations 1999 (‘UTCCR’) do not apply to these types of charges.

The first phase of the test case was heard in January and February 2008 in the High Court in London, with judgment being issued in April 2008.

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 overdraft charges are assessable for fairness under the UTCCR. However, the Judge was explicit in stating that this does not mean they are unfair; he was not asked to rule on whether the Banks' terms were fair.

The Banks appealed the decision that unarranged overdraft fees are assessable for fairness under the UTCCR. The appeal hearing took place in the autumn of 2008. The Court of Appeal handed down its judgment in February 2009 reaching the same decision as the High Court, although for slightly different reasons. The Banks applied for and received permission to appeal this decision to the House of Lords (now called Supreme Court). This hearing concluded on 25 June 2009 and the judgment of the Supreme Court will be handed down on 25 November 2009.

A short hearing took place in July 2008 to consider whether terms and conditions previously used by the Banks were capable of being penalties and in October 2008, the High Court issued its judgment in relation to this part of the test case.

The Court invited NatWest to make further submissions in relation to some of the terms and conditions previously used by it.

Following a further hearing in December 2008, the Court issued its decision in January 2009. The Court found that most NatWest terms were incapable of being a penalty.

It found that a single historic term prohibited customers from using a card to go overdrawn. This does not mean that term is a penalty– this issue is still to be determined.

These decisions do not mean that the charges are unfair. The courts have not yet been asked to consider this question. A further hearing(s) will be required for the courts to determine the issue of fairness itself. It is not yet possible to confirm when this will be, but the Banks are working closely with the OFT to bring a conclusion to the test case process as soon as possible. On 3 April 2009, the OFT announced that it will proceed with its investigation of the fairness issue itself by looking at a representative sample of Bank terms and conditions.

As previously agreed with the Financial Ombudsman Service and the FSA, unless a customer is experiencing financial hardship, customer complaints relating to unarranged overdraft charges will currently remain on hold. The Court of Appeal has also recommended that cases relating to unarranged overdraft charges should remain on hold at present.

All judgments in the test case are available via www.judiciary.gov.uk/judgment_guidance/judgments/abbey-others.htm

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  1. What will happen to customer complaints about unarranged overdraft charges?
    The FSA granted NatWest a suspension of its obligations under the FSA's complaint handling rules whilst the Banks sought legal certainty on this issue. Unless a customer is experiencing financial hardship, complaints relating to unarranged overdraft charges will continue to remain on hold until January 2010 .We will ensure that any customer that has raised a complaint, and is being dealt with by our Collection and Recoveries area, will be treated fairly and sensitively.

    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.


  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 next in the test case?
    We are awaiting the Supreme Court’s judgment on whether the bank’s current terms and conditions are assessable for fairness. If the Court finds that the Bank’s terms are assessable for fairness, then further hearings may be required to determine whether the charges are fair.

    The OFT is consulting with the Banks as to whether their charges are fair in order to put the relevant issues before the courts as soon as possible. The OFT and the Banks hope to be in a position to suggest to the court timescales for future hearings shortly. This website will be updated once more information is available.


  5. How long will it take until customer cases are finally resolved?
    At this stage, it is impossible to say. The Banks are working closely with the OFT and the courts to bring a conclusion to the test case process as soon as possible.


  6. 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.


  7. 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 456. 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:

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