This appeal involved a relatively narrow issue. The Supreme Court had to decide not whether the banks’ charges for unauthorised overdrafts were fair but whether the OFT could launch an investigation into whether they were fair.

At present, banks provide retail banking services on the basis that customers whose accounts are kept in credit (in other words who lend money to the banks) will not be charged for the services provided;  customers who have authorised overdrafts will be charged interest on the money that they borrow from the bank; and customers who incur unauthorised overdrafts will be charged, not only interest on the sums borrowed, but fixed fees for each particular service involved.

The OFT has power to assess the fairness of terms in consumer contracts but this is subject to the limits laid down in the Unfair Contract Terms in Consumer Contracts Regulations 1999, which implemented European Council Directive 93/13/EEC.  Regulation 6(2)(b) states that the assessment of the fairness of a term in a contract “shall not relate . . . to the adequacy of the price or remuneration, as against the goods or services supplied in exchange”.  In other words, the “value for money” equation is excluded.

The Court of Appeal held that this exclusion applied only to the “core terms” of the contract and not to ancillary terms such as the charges for unauthorised overdrafts.

The Supreme Court unanimously held that the charges for unauthorised overdrafts fell within this exclusion. They were part of the price paid by the customer for the banking services provided.  However, the charges might still be open to assessment by the OFT on other grounds under Regulation 5.

Laurence Rabinowitz Q.C. appeared on behalf of The Royal Bank of Scotland.

Daniel Toledano Q.C. appeared on behalf of HSBC.