Court to rule if banks overcharged customers with 'punitive' fees

The long-awaited court case that will determine whether thousands of aggrieved bank customers can pursue overcharging claims against banks begins today.

A High Court judge will formally begin the case brought by the Office of Fair Trading (OFT) against seven banks and one building society which will help resolve the legality of unauthorised borrowing fees.

The OFT is seeking to prove bank charges fall under the remit of consumer contracts regulations, which stipulate that "penalty fees" must be proportionate to their cost. The banks maintain that the charges, of £30 for bouncing a cheque or exceeding an overdraft limit, are not punitive and so do not fall under the terms of the act.

Thousands of cases brought against banks have been stayed pending the conclusion of the case, saving institutions millions of pounds in interest.

If the OFT wins, it will seek to launch a second case aiming to prove that fees levied on customers are too high because they exceed costs of £4 a transaction.

If the banks win, they will be able to claim victory in the main arena of the bank charge revolt: current account charges. Until last summer, financial institutions were settling thousands of cases from customers claiming they have been overcharged before they reached court. High street banks paid out at least £400m in the first six months of 2007 but the total bill for the past few years may be more than £1bn.

Regardless of this case, customers can claim back late payment fees on credit cards of more than £12, the level set by the OFT as reasonable. The banks fighting the case are Abbey National, Barclays, Clydesdale, HBOS, HSBC, Lloyds TSB, Royal Bank of Scotland Group, along with the Nationwide Building Society. They provide 90 per cent of current accounts.