A ruling will finally be heard on Thursday which will shed some long-awaited light on the legality of so-called ‘unfair’ bank charges.

Last year, the Office of Fair Trading brought a test case against eight of the UK’s biggest banks and building societies, which represent 90 per cent of the current account market, claiming that the charges are illegal under the Unfair Terms in Consumer Contracts Regulation (UTCCR) 1999.

Mr Justice Andrew Smith, the judge who heard the test case, will be handing down his judgement on Thursday over whether or not the charges levied by banks when customers exceed overdraft limits, and bounce cheques or direct debits are fair or not.

Customers are charged up to £39 a time for going outside these terms and conditions of their account, but the test case is intended to determine the legality of theses terms and conditions imposed by account providers and clarify the situation for the consumer.

Many bank customers were already reclaiming bank charges that they have paid over the last six years, before a freeze was put on reclaiming them until after the test case is settled. If the judge rules in favour of the OFT and the consumer, then the banking industry could be forced to pay back millions of pounds to customers.

HSBC has already admitted to repaying £11 million in fees, and said it could be facing claims for a further £300 million if the OFT is successful.

The banks were making a reported £3.5 billion a year from these fees, and maintain that these charges are not subject to the UTCCR, but the OFT argues that the charge is supposed to reflect the costs incurred by the bank, and therefore they could be charging as little as £2 each time a customer breaches the terms of their account.

However, if the charges are deemed illegal under the Unfair Terms in Consumer Contracts Regulation, then it’s not a win-win situation for the consumer, as the banks are likely to put an end to free banking in order to recoup the revenue they were generating from the bank charges.

The test case commenced on January 17th and ran until February 8th; once a ruling is made, it will then have to be decided if the rules apply just to those banks involved directly in the test case or to the rest of the UK banking industry as well.

Many customers have also moved to reclaim credit card charges after the OFT ruled last year that the fees implemented for late or unpaid credit card repayments were unlawful. If a similar verdict is found on Thursday, there will be a rush of customers clamouring to reclaim bank charges too.

© Fair Investment Company Ltd