It’s depressing, disappointing, but not a complete disaster. The Office of Fair Trading's (OFT) decision to drop the bank charges case is a blow, yet there are still other legal avenues.
Today's announcement (see OFT ends bank charges fight MSE News story) effectively states the OFT will not continue with the main avenue of attack it used for the test case.
This was the very narrow 'Unfair Terms in Consumers Contracts Regulations'. After the shock defeat for the OFT in the Supreme Court on a technicality, it believes it would be difficult to win a case based on that.
The real frustration with this decision is that I know the OFT believes bank charges are unfair, it is just struggling to find a law to tackle them with so it can officially judge them unfair.
The disappointed looks on their faces and their off the record discussions of the 'bizarreness' of the Supreme Court ruling indicate that.
It's worth remembering the banks paid out around a billion pounds to reclaimers in the early days – knowing their charges were at best very close to crossing a legal boundary; and they're thanking their lucky stars that after two court failures they won at the final hurdle.
In hindsight, it's likely that going for a principled look at the law rather than looking at individual cases was probably a tactical error.
The courts may have ruled differently if they were presented with one of the many 1,000s of people who slipped into an unauthorised overdraft due to error and got caught in a snowballing spiral of charges.
Is there any hope for reclaimers?
Yes. Though no one should be doing their financial planning based on getting a payout. You need to assume you'll get nothing, but cross your fingers.
The first hope is with the Ombudsman, if your charges have caused you serious hardship, been disproportionate, snowballed (charges on charges) or are just unaffordable. It is likely to hear your complaint, and it's possible you'll win.
As it costs nothing and there's no negatives if it rejects your complaint, it's worth doing.
Otherwise, the real remaining hope is via the Consumer Credit Act (CCA), and the OFT hasn't ruled that out. The argument here is that under section 140 of the CCA, the relationship between customers and lenders (ie, overdraft providers) must be fair (see the main Bank charges guide for a full explanation).
The most important thing about this is where the burden of proof lies – it's for the banks to prove charges are fair rather than customers to prove they're not. We presented this argument to the OFT and it's looked at it – it's response is hopeful.
The way the CCA law is framed, it is about the relationship between the individual and the lender and therefore the OFT thinks a collective case has less chance of success than individuals trying this themselves.
Of course, the issue here is how some of the country's poorest are meant to fight the deep legal pockets of massive banks (in many cases funded by the taxpayer). Over the next few weeks, we will be examining exactly how that will work, drafting templates, if needed (ensure you get the free weekly MoneySaving email for details).
Sadly, it looks like it won't be possible to take this argument to the Ombudsman, though the CCA would need testing in court.
Will charges be made fair going forward?
The pressure of the bank charges campaign means many banks have already lowered their charges. And it's likely the strong negative public opinion plus political pressure will mean the hideous system of £35 a pop charges won't be around for long.
In its statement today, the OFT said it has "significant concerns about the operation of the market for current accounts". It believes fundamental changes are still required for the market to work in the best interests of bank customers.
It adds: "Banks earn around a third of their personal current account revenues from unarranged overdraft charges that are difficult to understand, not transparent and not subject to effective consumer control."
It also went on to state that remedies from voluntary action to legislative change are possible – and indeed, the government has indicated that if banks can't come to some form of solution on charges going forward then it may legislate.
Lack of competition and transparent charges is another major concern (see the Bank charges comparison table). One point being mooted is that customers should be able to opt out of unauthorised overdrafts, and that seems eminently fair – why shouldn't people be able to say, "if I go beyond my limit, don't pay out and don't charge me"?
The OFT will also be looking at whether bank charges constitute 'responsible borrowing' and looking to publish new guidelines on that. After all, the nature of charges that spiral and entrap means many are effectively borrowing at levels they simply can't repay.
When that report comes out, it's likely the part-nationalised banks, RBS, Lloyds and Northern Rock, will have no choice but to follow its recommendations and political pressure will be put on the rest to sign up too.
Further reading/Key links
Fight back: Bank Charges