Office of Fair Trading to Investigate Bank Charges

The Court of Appeal has recently held that the Office of Fair Trading (“OFT”) can investigate the fairness of certain terms in standard form contracts between banks and their customers. The investigation will concentrate on four categories of charges:

  • unpaid item charges
  • paid item charges
  • overdraft excess charges
  • guaranteed paid item charges

Each of these charges is applied when the customer has insufficient funds in his account to make a payment.

The Court concluded that as the relevant terms were not specifically negotiated between the bank and its customer and that these charges were not part of “the core or essential bargain” between the bank and customer as they only apply in specific circumstances. As a result, the Court decided they are in effect ‘default charges’, despite the fact that they apply even when the customer has not breached his contract with the bank and as such that they are subject to the assessment of the OFT. Should the OFT conclude that these charges are ‘unfair’ they will no longer be binding on bank customers.

This is not only of importance to all bank customers and lenders but also to all providers of services/goods to consumers. In essence, any term which is not individually negotiated between the provider and receiver of a service/goods and which is not ‘core’ to the agreement could be considered to be a ‘default charge’ if it only applies in specific circumstances. If it is considered to be a ‘default charge’ this may result in it being ‘unfair’ and unbinding. Any, standard term contracts should be reviewed to consider whether there are any terms which could be considered ‘default charges’ (i.e. late payment/dishonoured cheque fees).

The OFT’s report in respect of the fairness of these charges should be available in the next few months. We will update you once it is available and comment on its implications.


Office of Fair Trading –v- Abbey National Plc and Others: judgement published 3 March 2009