An Objective Analysis of the Overdraft Fees Case

Sometime during this week, Wednesday (November 25, 2009) to be exact, the new Supreme Court of England and Wales handed down a favourable decision to the banks and building society that had been battling in the country's courts with the Office of Fair Trading (OFT) in the last couple of years. I don't know how familiar readers are with that case. The main issue had to do with the fairness of overdraft fees being charged by the banks and building society. Now this was test case meaning no one was suing anyone except the OFT wanted the question - whether the OFT could assess the fairness of the overdraft fees - answered. The OFT won in the High Court and Court of Appeals. Or should I say the banks and building society lost in the High Court and Court of Appeals. Either way, both the High Court and Court of Appeals thought the OFT could assess the fairness in the overdraft fees. When the decision was handed down by the learned Law Lords of the Supreme Court, many websites and media outlets described the decision as a big blow to millions of consumers/customers. Why? Well these millions of customers/consumers were owed some money as a result of the High Court and Court of Appeal rulings. But their refunds had to be put on hold as the case progressed through the justice system. Now with this ruling, they get zero. Harsh? Not really if you ask me. Bear in mind I have an overdraft to pay as well. Now these banks and building society charge around £39 as overdraft fees per transaction when in fact they spend under £3 pounds when a transaction occurs involving a consumer's/customer's overdraft. You may view this as unfair and rightly so which was why this test case was brought. Now the banks and building society make around £2.6 billion from these overdraft fees. If the OFT are allowed to assess the fairness of those fees and subsequently those fees are reduced significantly or eliminated, the banks and building society will seek to gain that £2.6 billion from other avenues which were originally free. For example, fees for having an account (regardless of the type), fees for all forms of transaction, fees for using the ATM (like in the US) and many other free services we take for granted on a daily basis. I encourage you to view this from an objective standpoint. An overdraft is spending money you don't have at a time you really need the money. Usually in a financial emergency. The bank then says fine, you can use some of our money but you will have to pay this amount of money as overdraft fees. The customers/consumers have a choice, either make sure you always have money in your account or be willing to pay whatever fees for using money which isn't yours to bail yourself out. Harsh as it may sound, it is the right way to go. In a time when people spend and spend without any discipline. I may have to pay my overdraft soon but I am absolutely in favour of leaving the fairness of the overdraft fees to the banks and building society.