Test case - Overdraft charges update

8 October 2008

On 27 July 2007 the Office of Fair Trading, seven UK banks (including NatWest) and one building society started a court case to decide the legality of unarranged overdraft charges.

On 24 April 2008, the Court issued its judgment on the first part of the test case process. The judgment is available via www.judiciary.gov.uk (PDF).

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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 borrowing charges are assessable for fairness under the Regulations. He was not asked to rule on whether the banks' terms were fair or not.

In May 2008, The Court gave permission to the Banks to appeal April's Court judgment that unarranged overdraft fees are assessable for fairness under the Unfair Terms in Consumer Contracts Regulations 1999 ("UTCCRs"). The Banks are appealing on this issue as they continue to believe that the fees are fair and that the UTCCRs do not apply to these types of fees. There is limited guidance from case law on whether and how the UTCCRs apply in these circumstances and as the test case process is of considerable public interest, it is important for the issues to be fully tested. The OFT is not seeking permission to appeal the April judgment. The Banks' appeal will be heard by the Court of Appeal at the end of October.

A short hearing took place on 7 to 9 July 2008 to consider whether terms and conditions previously used by the Banks are capable of being penalties. On 8 October 2008, the Court issued its judgment in relation to this part of the test case. The judgment is available via www.judiciary.gov.uk (PDF). In summary the court invited NatWest to make further submissions in relation to some of the terms and conditions previously used by NatWest. The Court did not decide, nor was it asked to decide at this stage, that such terms are penal. A Case Management Conference will take place to deal with the next steps in the test case process. This website will be updated once a date for this further Case Management Conference is known.

While the Court concluded in April that unarranged overdraft fees are assessable for fairness, the Judge was explicit in stating that this does not mean that they are unfair. A further hearing will be required in order for the Court to determine the issue of fairness. It is not yet possible to confirm when this hearing will be but the Banks are working closely with the OFT and the Court to bring a conclusion to the test case process as soon as possible.

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As previously agreed with the Financial Ombudsman Service and the FSA, customer complaints relating to unarranged overdraft charges will currently remain on hold. NatWest will continue to ask Courts to keep cases relating to unarranged overdraft charges on hold until the test case process is concluded.

  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 Bank sought legal certainty on this issue.

    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?
    There was a further hearing on 7 to 9 July 2008 where the Court was asked to consider whether terms and conditions previously used by the Banks are capable of being penalties. On 8 October 2008, the court issued its judgment in relation to this part of the test case. In summary the court invited NatWest to make further submissions in relation to some of the terms and conditions previously used by NatWest. The Court did not decide, nor was it asked to decide at this stage, that such terms are penal. A Case Management Conference will take place to deal with the next steps in the test case process. to deal with the next steps in the test case process. This website will be updated once a date for this further Case Management Conference is known.

    While the Court concluded in April that unarranged overdraft fees are assessable for fairness, the Judge was explicit in stating that this does not mean that they are unfair. A further hearing will be required in order for the Court to determine the issue of fairness. It is not yet possible to confirm when this hearing will be but the Banks are working closely with the OFT and the Court to bring a conclusion to the test case process as soon as possible.


  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 Court 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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