The court upheld previous decisions in favour of the Office of Fair Trading’s test case, brought back in July 2007, aimed at proving that it was entitled to object to fees for overdrafts using consumer contract law. Since then, more than one million claims against the banks for refunds of excessive charges have been stalled, including complaints to the ombudsman.

But last week the banks won the first judgement in their favour -- from the highest court of appeal. They had already threatened to take the case to the European Court of Justice, and to defend individual claims from the OFT in the High Court if necessary. The Supreme Court, however, did leave the way open for challenges by the OFT on grounds of fairness.

Meanwhile, in two days’ time, the market’s now dominant force, Lloyds Banking Group, will bring in its controversial new account structure. On Bank of Scotland and Halifax current accounts, being overdrawn up to £2,500 will cost £1 a day, and for more than £2,500 it is £2 a day. For unauthorised overdrafts, it will be £5 a day -- with no monthly cap.

More than 50% of the UK population use their overdraft facility on a regular basis, and choosing the wrong facility could cost unwitting borrowers hundreds of pounds a year, according to

Its research suggests that 17% of us are permanently overdrawn and 13% use an overdraft more than six times a year. For these customers, an agreed overdraft with no charge except interest rates is likely to be a much better option than the new “simple” daily fees.

The cost of a £500 overdraft varies considerably across different banks. If you are in the red for the full month, within an authorised limit, it will cost you around £8 at the major high street banks and Nationwide, and nearer £5 at Abbey or Alliance & Leicester.

But from this week it will now cost you £30 (or £25 with a Reward account) at Halifax Bank of Scotland. Even half the month in the red will cost you £15 (or £10) at HBOS against £4 at the big banks, £5 at A&L and £2.70 at Abbey.

The new HBOS structure does away with the present monthly unarranged overdraft fee of £28, paid and unpaid item fees of £35 (three a day maximum), and overdraft interest of 19.5% (authorised borrowing) and 29.8% (unauthorised).

Bank of Scotland says the structure has been proved to work in the Reward current account with its “we give you £5 a month” offer for those who pay in £1,000 a month.

“We have opened over 500,000 Reward Current Accounts since its launch in February 2009,” says Mike Regnier, director of current accounts. “Customers find the daily overdraft charging structure clear and easy to understand. We believe the introduction of this charging structure is the right thing for our current account customers.”

The account was applauded when it emerged for scrapping the instant charges which can at present see an inadvertent £1 slip into unauthorised borrowing triggering a £28 charge plus a £20 administrative fee, and a ­possible £35 unpaid item fee. At the time, Andrew Hagger at said that it was “most welcome and hopefully something that other providers will consider”, adding that the move was “no doubt partly as a result of the ongoing OFT case looking at current account charges”.

But Mr Hagger’s analysis showed that HBOS’s present overdraft charges on authorised borrowing for 20 days are only £2.13 in interest charges on £200, £5.34 on £500, and £10.68 on £1,000. The new charge will be £20 regardless, less £5 if you have a Reward account.

But in order to get a Reward account, current account customers will have to apply specially -- otherwise there is no offsetting £5 a month.

Meanwhile, the new regime is bad news for anyone with unauthorised borrowings who doesn’t clear them within 13 days. The £5 a day flat fee means that after 14 days they will be paying more (£70) than the previous monthly fee (£28) plus unpaid item fee (£35). A full month over the limit would cost up to £155 instead of £63.

As soon as HBOS letters began to arrive last month, Which? launched a new banking campaign ( and organisations from Citizens Advice to the Church of Scotland filed critical comments. The Which? analysis assumed an authorised overdraft of £100 for 31 days, which at £31 would be an interest rate of 365%. That would come down to 18% for someone £2,000 in the red all month. The present charge for a month-long £100 facility is just £1.63.


At Govan Law Centre, which co-led the consumer campaign against excessive overdraft charges, principal solicitor Mike Dailly had hoped that Lloyds Banking Group, 43% owned by the taxpayer since its shotgun marriage with Halifax Bank of Scotland a year ago, would be open to challenge over the new structure.

Mr Dailly says: “The bank says it’s simple -- it is, but ultimately the problem is it will only benefit those customers who can bring down their overdraft within a couple of days. If you can bring it down quickly it isn’t going to cost you very much, but the vast amount of people who go into overdrafts and unauthorised overdrafts are in financial difficulties. The reason for that is if you have either lost your job or your partner has, or you have lost your overtime, or you have got ill, and you are in a bit of a sticky position or have fallen on hard times, in that situation you are not in a position to find a lump sum of money to bring yourself back into the black.”

Mr Dailly advised the consumer campaign that prompted the one million claims from customers. He says the campaign is being cranked up again on the basis of the judgement, and goes on: “The banks’ argument has been this is paying for the cost of banking for everybody. You are saying you are charging people who go into default to pay for somebody who is not -- how could that be fair?”

He adds: “I don’t think HBOS are out of the woods yet -- I think it is more of the same. RBS have taken action to make their charges more fair.”

RBS introduced its changes on October 1. Fees for bounced cheques have been cut from £38 to £5, and unpaid item fees are down to £15. But there is still a £20 a month fee for an overdrawn account and a 19.83% interest rate on unauthorised borrowing.

RBS, he says, is doing what credit card companies did when they reduced charges down to £12. “RBS has drawn a line in the sand and its charges are now not much more than credit card charges. Not all banks are following that strategy. My concern with Lloyds-HBoS is, ‘we own 43% of you, this is entirely regressive, have you learned anything?’”

Kevin Mountford, head of banking at, said: “Customers must also understand that there is a difference between authorised and unauthorised overdraft charges. Unauthorised charges are not always made clear by providers and can vary from anywhere between 0% and almost 30%. In such cases, anyone borrowing without their banks prior agreement could be in for a nasty surprise.”

He added: “A common misconception is that consumers can’t switch their current accounts when overdrawn. But as long as you manage your account well -- even if it’s in the red -- there is no reason why you won’t be able to move to a more competitive product that better suits your needs.

“Times are tough, and anyone paying through the nose on their overdraft should shop around to see if there is an alternative account available that wouldn’t leave them so out of pocket.”

Last week, Santander unveiled its “zero account” which launches next year, but only to mortgage customers.

It will charge no fees, only interest rate costs on an overdraft, at a rate which will launch at a market-leading 12.9%.

That puts it in line with many accounts currently available, but it adds other features, including no fees for bankers’ drafts or foreign usage of credit cards, and a 6% credit interest rate in the first year.

But it may only have marginal advantages for those running modest agreed overdrafts -- and its cost to the bank could be reflected in the pricing of its mortgages.