Bank charges – what does the ruling mean for you?

The new Supreme Court has made a surprise ruling in favour of the banks in a long running case on penalty charges. It overturned earlier court rulings that had allowed the Office of Fair Trading to investigate the fairness of the charges following an appeal by the banks.

So will banks be able to keep charging high fees?

Yes. After court cases that have run for two years, the Court has ruled that the OFT cannot investigate the fairness of high overdraft fees. It said the charges – which can be as high as £39 – were part of the cost of using an overdraft and so could not be assessed under Unfair Terms in Consumer Contracts regulations.

Without that investigation banks will be able to keep charging customers each time they exceed their overdraft limit or have a payment rejected.

They will be keen to do so as these charges are extremely lucrative for the banks they bring in an estimated £2.6bn of annual income. However banks still could come under some pressure to change their charging structure and bring greater transparency into their accounts.

What does this mean for customers hoping to get refunds from banks for charges they have already paid?

More than 1m bank customers have had claims frozen pending the ruling. The vast majority of these are now likely to be shelved. Customers may still be able to pursue a refund if they can make a different case – if they are in financial difficulty for example – but they can no longer claim that the charges are unfair.

But on the other hand will people who manage their bank accounts responsibly benefit?

People had thought that if the banks had lost the case they would have started charging monthly fees for bank accounts to claw back the lost revenue. They will now be under less pressure to do this so consumers should still have a wide choice of free bank accounts. In simple terms, people who manage their accounts well are the winners while people who exceed their overdraft limit will continue to pay more.

However banks have been taking steps to change charges irrespective of the ruling. Royal Bank of Scotland halved its charges earlier this year and Santander has launched a new account for its mortgage customers that does not charge people even if they exceed their limits.

Is this case firmly closed now?

Not quite. The are still avenues the OFT could pursue – such as launching a full Competition Commission inquiry into these charges – but its hand has been significantly weakened. The OFT could also try to investigate the charges under other regulations.