OFT legal bid on overdraft charges

The High Court challenge, brought by the Office of Fair Trading (OFT) against seven leading retail banks and the Nationwide building society, was beginning formally with reading of legal papers. But the hearing is not expected to open until Wednesday.

The regulator will argue in the case opening this week that the overdraft charges come under the scope of the 1999 Unfair Terms in Consumer Contracts Regulations.

If the judge rules that the charges come under this legislation, the High Court could then decide at a separate hearing at a later date on what a fair charge should be.

"It means (if we win) that we can go back to the court with new evidence from our banks market study and start to talk about whether and what a fair amount should be," a spokeswoman for the OFT said.

Bank customers can incur the charges for taking out an unauthorised overdraft or breaching their authorised limit.

Charges can also be levied if customers make a payment but have insufficient funds in their account to cover it or if banks stop a payment because the account holder does not have enough money.

Banks are thought to make between £2 billion and £3.5 billion a year in fees charged when customers go into unauthorised overdraft.

The fees charged to customers can be as high as £39, but campaigners claim that the actual cost to banks is as little as £2.50.

The hearing is an attempt to resolve the legal issues at the heart of the wave of mass litigation which swept the country during the past two years.