On 27 July 2007 the Office of Fair Trading (‘OFT’), seven UK banks, including RBS, and one building society (‘the Banks’) started a court case to resolve certain issues regarding the fairness and legality of unarranged overdraft charges.
This has become known as the ‘test case’. This is a complex area of law on which there was limited guidance; it was therefore important for the issues to be properly and fully examined.
On 25 November 2009 the Supreme Court ruled that the level of unarranged overdraft charges in personal current accounts cannot be assessed for fairness under the Unfair Terms in Consumer Contracts Regulations 1999 (UTCCR). The Court decided that current account clients receive a package of services and unarranged overdraft charges are part of the price paid by clients in exchange for that package.
Earlier hearings established none of RBS’s terms was capable of constituting a penalty clause and that with one exception none of NatWest’s terms was capable of constituting a penalty clause. One historic term was found to be a contractual prohibition, but no ruling was made that any unarranged overdraft charge arising from a breach of this prohibition was a penalty.
In our view, the judgment of the Supreme Court means that the level of RBS Group unarranged overdraft charges cannot be assessed for fairness under the UTCCR or challenged under the common law penalty doctrine.
We do not believe that there is any other legal basis on which the level of these charges can be challenged The Supreme Court verdict is available via http://www.supremecourt.gov.uk/decided-cases/index.html
1. What will happen to client complaints about unarranged overdraft charges?
Client complaints were put on hold during the test case by the Financial Services Authority ('FSA'), who granted a "waiver" on the normal bank complaints handling processes. Now that the test case is over, the FSA has removed this "waiver" and the RBS Group will consider and respond to client complaints. We are now in the process of writing to all affected clients individually, detailing how we will resolve their complaint.
2. What will happen to my court claim for a refund now?
Most county court cases were stayed pending the outcome of the test case, i.e. the county courts decided that no further action should be taken in respect of them at this stage, while the test case proceeded. These stays were put in place because the test case would give important guidance to the county courts as to how they should approach individual consumer cases as a matter of legal principle.
It is important that all county courts adopt similar approaches to ensure fairness between claimants. The county courts will decide at what point it is appropriate for stays to be lifted.
3. What will happen to client complaints made through the Financial Ombudsman Service in the meantime?
We are currently in discussion with the regulators to ensure that clients are dealt with on a consistent basis in line with the judgment from the Supreme Court. For further information and updates please check the Financial Ombudsman Service website - http://www.financial-ombudsman.org.uk/faq/bank-charges.html
4. What will happen next in the test case?
As the Supreme Court has found that the level of RBS Group's unarranged overdraft charges cannot be assessed for fairness under the UTCCR the test case proceedings are now concluded. The Supreme Court's decision is final. RBS Group and the other banks involved in the test case are currently in discussions with the regulators to ensure that any outstanding matters are brought to a swift conclusion.
5. How long will it take until client cases are finally resolved?
We aim to write to all affected clients detailing how we will resolve their complaint by the end of January 2010. Any clients raising new complaints will receive a final response within 8 weeks of notifying us.
6. I am in financial difficulty - what can I do?
If you have financial problems, come and talk to us, and we will try to help you solve them. Depending on your circumstances, we could set regular or fixed repayments for debts, or we could reduce or suspend your repayments for a certain period.
If you have a more serious debt problem, we will work with you and put you in touch with organisations that offer help and advice to sort out your repayments and overcome your difficulties.
If you feel you need independent financial advice, we will be happy to direct you to someone, or to work with your chosen adviser.
The sooner you come to us, the more likely it is that we will be able to help.
7. Where can I find out more?
We will update this page with any developments in the proceedings.
You can contact us by calling your private banker on 020 7753 1000.
Alternatively you can find out more at the following websites:
