By Pam Atherton

The legal battle currently being waged between the Office of Fair Trading and a group of banks over the fairness of penalty charges could end up harming all UK bank customers.

If the OFT wins, it could put an end to free in-credit banking and the introduction of restrictive and expensive bank accounts of the type now prevalent in Europe. Most UK bank accounts remain free of charge for those in credit and some pay remarkably good rates of interest on credit balances.

The Lloyds TSB Vantage account, for instance, pays tiered rates of interest of up to 4 per cent on balances up to £7,000. Not bad, for free standard banking services and instant access to your money, when base rate is just 0.5 per cent.

Compare this with the terms and conditions of the typical US or European bank account and it makes UK banks look like paragons of virtue.

For anyone who has forgotten what the legal case is about, hundreds of thousands of bank customers have filed claims in the county courts for the refund of overdraft charges which they deem unfair.

The banks settled most of these claims out of court without admitting liability up until July 2007, when the OFT and a group of banks agreed to bring a test case to force a legal ruling. All pending claims were put on hold.

Since then, the High Court and Court of Appeal have ruled that the OFT does have the right to scrutinise the fairness of bank charges under the 1999 Unfair Terms in Consumer Contract Regulations.

Last week the banks were appealing these decisions in the House of Lords. A ruling is expected in October, but the case may still be referred to the European Court.

David Black, Defaqto banking consultant, says: “If the OFT ultimately wins, it is likely to spell the end of free in-credit banking for UK customers.”

As 80 per cent of the latter never go overdrawn, the majority will be penalised. But the joy of those who go overdrawn may be shortlived.

Many European banks don’t allow unuauthorised overdrafts at all and routinely charge for standard banking services, even for those in credit. Fees of €30 a year for account maintenance, €20 for cash cards and up to €150 for CHAPs payments are standard fare in Europe. Do we really want this type of charging in the UK?

© Investment & Business News 2013