March 4, 2008 / 9:28 AM / 10 years ago

Bank refunds could cost millions

LONDON (Reuters) - HSBC said it could take a $600 million hit from a court case into whether British bank charges are legal and fair, raising the prospect that customers could win billions in refunds from banks.

HSBC said it could take a $600 million hit from a court case into whether British bank charges are legal and fair, raising the prospect that customers could win billions in refunds from banks. REUTERS/File

A test case on UK bank charges began earlier this year in the High Court and is expected to be a long legal battle. HSBC is the first to outline the potential full impact.

“Based on the facts currently available to it, and a number of assumptions, HSBC Bank Plc estimates that the financial impact could be approximately $600 million,” the bank said in its annual report.

That would be on top of refunds of 115 million pounds it paid out last year, before refunds were suspended across the industry pending the court decision.

Joe Garner, general manager of HSBC’s UK personal financial services, said the figure was “a best estimate” made by auditors and there was a wide range of estimates.

There are a number of potential outcomes for the case, ranging from charges being deemed fair to banks being forced to refund charges for the past six years and paying compensation.

Britain’s major banks and the consumer watchdog are seeking to provide clarity on a long running dispute on the charges applied to unauthorised account overdrafts, after thousands of customers reclaimed millions of pounds in refunds but banks continued to impose the fees.

The charges, typically between 24 and 39 pounds for each unauthorised overdraft, should be regarded as unfair under consumer contract regulation, the Office of Fair Trading says.

Banks paid out more than 400 million pounds in refunds in the first half of 2007, but say the charges are fair and clear.

The High Court’s preliminary ruling is expected in April or May, but HSBC said the legal dispute could continue for years.

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