Robin Hood

Banks are not ‘Robin Hood in reverse’ when it comes to overdraft charges, the House of Lords has been told as seven banks and one Building Society petition he Office of Fair Trading regarding the regulation of their overdraft fees.

Jonathan Sumption QC says that banks aren’t taxing the overdrawn to help others but that overdraft fees involve a large element of cross-subsidy.

The result of the appeal of the OFT will decide if millions of bank customers are able to reclaim their past bank charges back or not.

According to Mr Sumption, current consumer contract regulations, the OFT does not have the power to regulate overdraft fees, and that these fees are required, but shouldn’t necessarily be fair.

Overdraft Charges ‘Fundamental’

In previous court battles, judges have upheld that the OFT has the right to make its opinion heard on the fairness of banking charges under the 1999 Consumer Contract Regulations. But Mr Sumption says this is wrong, and that in both cases the problem had been over-refined and overcomplicated the interpretation of the Regulations.

He also points out that the Regulations were not designed to mediate price control or the services offered. And therefore they do not apply to the main subject matter of a contract or the price being charged for it.

He said: “The overdraft charges are too fundamental to the bargain to be declared unfair.”

According to Mr Sumption, people who exceed their overdraft and have to pay charges are paying back the cost of providing a current account to those who are always in the black. Therefore the charges exceed the cost of dealing with an overdrawn customer because “the revenue stream is essential to the whole of the current account structure.”

OFT Raising The Stakes

Apparently cross-subsidies are also common in the banking industries like France, Canada and the US., and that they are common in their charging structures. He also compares them to mobile phone tariffs and airline ticket prices which people do not object to.

One of the Law Lords assigned to the case asked if bank charges included a surcharge to subsidise those who did not go overdrawn. Another suggests overdrawn customers be taxed for the benefit of others.

Mr Sumption said that banks were not operating a Robin Hood-like operation in reverse, saying that if the OFT were to succeed it might render all past overdraft payments unenforceable possibly leading to “restitution.”

“The OFT has significantly raised the stakes. The issues are of considerable importance to consumers and the future of retail banking.”

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