The much anticipated findings in the test case between the UK’s major banks and the Office of Fair Trading over unfair bank charges has been announced. The first round found against the banks.

The decision, announced today by Mr. Justice Andrew Smith is against the banks, however, the Judge, in what is a complex ruling, did not rule that the bank charges were completely unfair, stating that the OFT can apply consumer contract regulations to decide if bank overdraft charges are unfair.

The decision leaves those with valid claims to make against the banks in limbo until 22nd May, when the banks have to decide if they are going to appeal against the ruling.

Even conservative estimates claim that £1billion is at stake, so it is highly probable that the banks will contest the decision. As it is such a major financial issue – affecting thousands – it is likely to go all the way up to the House of Lords, which means that a legal outcome will not be with us until 2009.

As previously agreed with the Financial Ombudsman Service and the FSA, customer complaints relating to unauthorized overdraft charges remain on hold. The Banks will continue to ask County and Sheriff Courts to keep cases relating to unauthorized overdraft charges on hold until the test case process is concluded.
Based on the OFT’s estimate, consumer group Which? Claims that the banks make up to £3.5 billion a year from unauthorised overdraft charges, which suggests that the amount the banks have made since the start of the test case on January 14th at 10am will hit £1 billion just before 5pm on Sunday 27th April. This is the equivalent to £110.98 per second or £399,600 an hour.

Doug Taylor from consumer group Which? Said that the banks should cough up the cash as dragging out the process will only damage their already tarnished reputations.

Given the squeeze on credit, liquidity problems and a general banking crisis, a loss for the banks, while good news for thousands of consumers facing hefty charges, could ultimately bring about greater charges in terms of monthly current account ‘operating’ charges, as the banks try to recoup their losses. Charges for current accounts look increasingly likely and would apply to everyone, including those who are prudent with their money and manage their finances effectively.

The OFT Case: The Details

Which banks is the OFT court case against? The application for the declaration is brought against: Abbey National plc, Barclays Bank plc, Clydesdale Bank plc, HBOS plc, HSBC Bank plc, Lloyds TSB Bank plc, Nationwide Building Society and Royal Bank of Scotland Group plc.

What makes this court hearing so important? This is a massively important case in terms of the numbers of people it represents. Already tens of thousands of claims have been made against bank overdraft charges in County Courts.