Important information about unarranged overdraft bank charges

What is happening?

On 27 July 2007, the Office of Fair Trading (OFT), 7 UK banks (including HBOS) and Nationwide Building Society, started a court case to decide on the legality of unarranged overdraft bank charges.

The case has been called a "test case" because the decision will clarify the law in this area. It is likely to apply to all current and new claims against current account providers about unarranged overdraft bank charges.

We believe that unarranged overdraft fees are fair and reflect the service customers enjoy and that legal certainty over unarranged overdraft bank charges is in the interests of all concerned.

The first step in this process was a trial of certain 'preliminary' issues. This preliminary trial concluded on 8 February 2008.

The Court has issued its judgment on this first stage of the test case process.  The judgment is complex and the Banks are currently considering its implications.

Further Court hearings will be required before the test case process is concluded.  The likely timetable for the next steps in the test case process will be decided by the Court on 22 May 2008.

As previously agreed with the Financial Ombudsman Service and the FSA, customer complaints relating to unarranged overdraft charges will currently remain on hold.  The Banks will continue to ask County (England & Wales) and Sheriff (Scotland) Courts to keep cases relating to unarranged overdraft charges on hold until the test case process is concluded.

Who are the banks/building societies involved?

HBOS, Lloyds TSB, HSBC, Barclays, Abbey, Clydesdale, RBS/NatWest and Nationwide.

Although not all UK banks and building societies are party to the test case, all banks and building societies that offer current accounts have agreed to apply the court's final decision to all of their complaints on unarranged overdraft bank charges, when it is reached. So, the court's final decision will apply to all UK customers who have incurred unarranged overdraft bank charges on a UK current account.

The FSA are also involved but are not currently a party to the court case.

Why aren't the other banks involved?

We cannot comment on their reasons for not wishing to participate.

Although not all UK banks and building societies are party to the test case, all banks and building societies that offer current accounts have agreed to apply the court's final decision to all of their complaints on unarranged overdraft bank charges, when it is reached. So, the court's final decision will apply to all UK customers who have incurred unarranged overdraft bank charges on a UK current account.

Why are you doing this?

The OFT and the banks and building society involved in the "test case" believe that legal certainty over unarranged overdraft bank charges is in the interests of all concerned.  Examining the legality of charges now will make sure that any conclusions drawn by the OFT's ongoing investigation into unarranged overdraft bank charges will not be open to challenge at a later date.

What will happen to customer complaints about unarranged overdraft bank charges?

Banks and building societies will not be dealing with or resolving customer complaints on unarranged overdraft bank charges while the test case is running.

If you do complain about your unarranged overdraft bank 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.

Why are the banks allowed to stop dealing with unarranged overdraft bank charge complaints during the test case?

The banks applied to the Financial Services Authority (FSA) for a suspension of the normal timetable for banks to deal with unarranged overdraft bank charge complaints.  The FSA decided that, in the circumstances it was appropriate to grant a suspension of the banks obligations under their complaint handling rules while the banks sought legal certainty on this issue (which is now affecting more than 100,000 UK customers).  The conditions of the suspension are designed to protect customers' rights and ensure that customers won't be materially adversely impacted by the suspension.

The FSA's suspension direction can be found on the FSA's website: www.fsa.gov.uk .

Can I make a court claim for a refund during the test case?

Yes, but we will apply to the court to put your case on hold while the test case is running.   This is because the issues being raised in customer complaints on unarranged overdraft bank charges are being considered in the test case.

Can I complain to the Financial Ombudsman Service about my unarranged overdraft bank charges?

Yes, you can make a complaint but it will not be reviewed while the test case is running.

The Financial Ombudsman Service (FOS) has decided not to review complaints while the test case is running.  If you do complain to FOS, they will respond to you confirming their position directly.

How long will the "test case" take?

At this time it is too soon to give any timescales for a conclusion to the "test case" but we expect it to go for more than a year. 

We have agreed with the OFT and the FSA to conduct the test case in an efficient, prompt and orderly way.

We will continue to post updates on our website to keep customers informed of progress on the test case.

Will I be compensated for this delay?

Should the test case resolve that the bank is due to pay money to you, any amounts paid to you will include an element of interest to compensate you for the delay in any payment due to you.

Why hasn't a case been taken to court before now?

We have been working closely with the OFT as part of its enquiry.  Within this we have discussed the option of taking a "test case" to court and a decision has now been made by the parties to take this forward.

Why wasn't a "test case" on credit card charges taken to court?

The OFT made a ruling based on its interpretation and understanding of the law.  This has not been tested in the courts and remains open to legal challenge.

Is the OFT suing you?

This action has been mutually agreed by the banks and the OFT in order to provide legal certainty over the issue of unarranged overdraft bank charges.

Will I still incur charges while the test case is on-going?

Yes, your account is still subject to the usual terms and conditions whilst the case is on-going.

Will my bank account be frozen while the test case is ongoing?

No, your account can be operated as normal and is still subject to the usual terms and conditions whilst the case is on-going.

Will I hear anything from you in the meantime?

We will keep you updated appropriately about the proceedings with the OFT.  You can also check the latest position on our websites at

www.bankofscotlandhalifax.co.uk
www.bankofscotland.co.uk
www.if.com

I live in/have an account in Scotland, how does this affect me?

If you choose to raise a claim against the bank in the Scottish Courts the bank will immediately apply to the Court to put your action on hold until the resolution of the bank's legal proceedings with the OFT.

Should you choose not to raise a claim against the bank in the Scottish Courts now, you should be aware that under Scots Law the timing of when you raise a claim against us may be important.  The court may decide that we have no obligation to make repayment of the unarranged overdraft bank charges that were applied to your account more than 5 years before the date on which you raised a claim against us.  You may therefore wish to seek independent legal advice as to what steps you need to take in order to protect your right to claim repayment of unarranged overdraft bank charges from us in the future (e.g. when the legal proceedings with the OFT are resolved).

Where can I find more information?

You can find more information on our website or on the OFT and FSA websites.  You can also obtain a copy of a consumer fact sheet from the FOS website.

www.bankofscotlandhalifax.co.uk
www.bankofscotland.co.uk
www.if.com

www.financialombudsman.org.uk
www.fsa.gov.uk
www.oft.gov.uk

Note: When the FSA/OFT/FOS refer to 'unauthorised overdraft charges', they are referring to what we generally refer to as bank charges or unarranged overdraft bank charges.