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UK court starts bank charges hearing

Published 06/23/2009, 08:46 AM
Updated 06/23/2009, 08:49 AM
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By Myles Neligan

LONDON, June 23 (Reuters) - A long-running legal battle which could result in banks being forced to pay back billions of pounds to customers reached a key stage on Tuesday as lenders challenged an earlier ruling against their overdraft fees.

The House of Lords, Britain's highest court, began a three-day hearing into an appeal by seven major lenders against an earlier judgement that overdraft charges fall under the scope of consumer contract law -- and can therefore be regulated by the Office of Fair Trading.

The Lords' decision is not expected until the autumn, but a ruling in the lenders' favour would mark a serious setback to bank customers hoping to have their overdraft fees repaid.

"In theory, the banks would not have to pay back the overdraft charges," a spokeswoman for consumers' lobby group Which? said.

Tuesday's hearing is the latest stage of a test case launched by the banks and Office of Fair Trading, Britain's consumer watchdog, almost two years ago.

The case was designed to establish whether overdraft charges were lawful as growing numbers of bank customers took advantage of their uncertain legal status to demand refunds.

If this week's House of Lords hearing goes against the banks, the OFT will estimate a "fair" overdraft charge which would then be used to determine the amount of compensation payable to bank customers.

However, the banking industry could mount a legal challenge against the OFT's estimate, potentially leading to another round of court cases.

The losing side in this week's hearing would also have the option of making a final appeal to the European Court of Justice.

HSBC Holdings Plc, Britain's biggest bank, said in March last year it could take a $600 million hit if it loses the case. Analysts have estimated defeat would cost the banking industry over 2 billion pounds ($3.3 billion) in lost revenue and refunds.

Others behind Tuesday's appeal include Lloyds Banking Group Plc, Royal Bank of Scotland Plc, Abbey (part of Spain's Banco Santander SA, Barclays Plc, Clydesdale Bank (part of National Australia Bank Ltd) and building society Nationwide. (Editing by David Holmes) ($1=.6070 Pound)

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