Banks can carry on charging customers for overdrafts

Bank customers today lost their legal fight for a refund of billions of pounds of overdraft charges.

In a surprise decision, the Supreme Court backed the leading high street banks on what was described as "a black day" for consumers.

The ruling means that an estimated 1.2 million claims for refunds of "excessive" overdraft fees of up to £35 a day are now almost certain to be rejected.

About £1 billion had already been paid out as "goodwill gestures" between 2005 and 2007 to disgruntled bank customers before the legal case began and they are almost certain to be able to keep them despite today's decision.

It is a bitter blow for the Office of Fair Trading, which brought the case under the Unfair Terms in Consumer Contract Regulations and had already won in the High Court and Appeal Court. However, today's 45-page judgment left the door open for a fresh legal case on different grounds and acknowledged that the decision "may cause great disappointment and indeed dismay to a very large number of bank customers". It also asked whether "ministers and Parliament may wish to consider the matter further".

Peter Vicary-Smith, chief executive of consumer group Which? said: "This is a bitter blow for the millions of people who have been patiently waiting to get their bank charges back. Not only does it give banks licence to charge what they like for unauthorised overdrafts, but it could have ramifications for other areas of personal finance."

Michelle Slade, of financial website Moneyfacts.co.uk said: "The shock decision by the Supreme Court is going to leave some consumers even more disillusioned with banks.

"Consumers have seen billions of pounds pumped into a number of banks, but many feel they have seen little benefit. It seems surprising that making a £35 charge for, in some instances, going a few pence overdrawn is not regarded as unfair."

The OFT, which has been carrying out a detailed study of the charges, said it was "disappointed" by the ruling and said it would wait until next month to decide whether to pursue its legal campaign. It was refused leave to appeal to the European Court of Justice.

The banks had argued that charges were part of their business package. In a statement, the British Banking Association said: "The Banks acknowledge the unanimous decision of the Supreme Court to allow their appeal in respect of these charges. We recognise this issue has been of real concern to a large number of our customers and we are pleased that this decision now brings clarity for all parties. The banks will work with the regulators to ensure that the outstanding customer complaints are brought to a swift conclusion."