UK: Bank Charges - Supreme Court Overturns Decisions Of Lower Courts

Last Updated: 1 November 2009
Article by Sarah Redlich and Jean Price

The Supreme Court has, today, handed down its long-awaited decision in the test case of The OFT v Abbey National Plc & Others [2009] UKSC6. It crucially over-turns the decisions of the High Court and the Court of Appeal and finds unanimously for the Banks. In essence, the Justices held that charges for unauthorised overdrafts are part of the price or remuneration of the services provided under the current account contract. As a result, these charges are not subject to an assessment of fairness under Regulation 6(2) of the Unfair Contract Terms in Consumer Contracts Regulations 1999 ("UCTCCR").

Importantly, the Supreme Court has left the door open for the OFT to assess the fairness of the charges on other grounds, including Regulation 5(1) which will deem a term unfair if it creates a significant imbalance between the parties and is, therefore, contrary to the requirement of good faith. This means, that while today's decision has clarified the position somewhat and narrowed the grounds of investigation challenge for the OFT, the issue is by no means settled.

The OFT has today already announced that it will be considering the Supreme Court's Judgment and its position carefully and discussing with others, including other banks, the FSA, and the Government whether it should continue its investigations into unauthorised overdraft charges. Such investigations are likely to include further Court hearings. It is expected to make an announcement in December.

Furthermore, the FSA has lifted its waiver on firms' requirements to deal with complaints and the Financial Services Ombudsman ("FOS") has announced it is considering the Judgment and its effect on the complaints currently with it but on hold.


Clearly any decision the OFT may make to continue pursuing an assessment of fairness under Regulation 5(1) of UCTCCR or any other grounds that are available, and the fact that banks will now need to deal with, and possibly redress, internal complaints that have been on hold and possibly those complaints which have been referred to the FOS, will mean a significant investment of time and expense for the seven banks directly involved in the OFT's test case and banks generally. Reportedly, these seven banks provide around 90% of the personal current accounts held in the United Kingdom.

However, today's decision would still appear to be good news for banks and the significant majority of current account holders alike:

  • The Supreme Court has removed a fundamental, and possibly the key, ground for conducting an assessment, and challenging the fairness, of unauthorised overdraft charges – making any further challenge brought by the OFT much less clear cut and certain to succeed;
  • Ultimately, whether the matter is left at this decision or challenged on a different ground, it may that overdraft charges are held to be a reasonable part of the services provided by current account providers and that consumers who consider they may need to use such services in the future should consider the relevant terms and conditions carefully at the point of sale;
  • In the meantime, in dealing with complaints, the banks have a favourable Court decision on which to base their own decisions in relation to individual complaints. However, in doing so banks should take account of the fact that the Supreme Court's decision does not necessarily mean that the charges are fair on all grounds;
  • Furthermore, although the position in relation to FOS complaints is not yet certain, the FOS must - and it has indicated it will - consider the law in reaching its own decision in relation to these. It may decide to apply and rely on the Court's decision in rejecting these complaints - and it may decide that all similar complaints should be dealt with in the same way. However, in practice, whether or not FOS apply or rely on the Court's decision, is likely to depend on the particular facts of individual complaints or groups of complaints. Its decision on how it intends to proceed will be awaited with interest;
  • The decision has brought the banking industry closer to preventing the need for all current accounts to come with an attached fee. Without charges the banks would have to fund unauthorised overdrafts by means of fees to all customers, including those who have never had the need to use such facilities;
  • One of the Justices making today's decision, Lord Walker, appears to have support for this issue, commenting in the Judgment that the absence of charges would mean banks would not be able to provide current account services without a fee and the question was whether it was, in fact, "fair" that customers in credit subsidise (by way of fee levies) those customers who experience events unforeseen when they opened their accounts. Notably, the Judgment cited 12 million current account holders regularly incur charges for unauthorised overdrafts, as against 42 million who never, or rarely, do.

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to

Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.

The original publication date for this article was 25/11/2009.

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