A victory for a bank customer in Taunton County Court could cause considerable grief for the clearing banks unless the decision is overturned on appeal.

The Court heard an appeal from a man who took action against Lloyds TSB (as it was then) over charges totalling £743 that were levied against his current account between late 2007 and mid-2009. In addition, the account holder claimed unspecified damages because the bank reported him to credit rating agencies, which he claimed was in breach of the Data Protection Act 1998. The referral did not happen until after he had entered into a debt repayment agreement with the bank.

The issue essentially revolved around the increased charges levied on the bank’s customer and whether these were fair under the Unfair Terms in Consumer Contract Regulations 1999 bearing in mind the disparity of bargaining power between the bank and its account holder. Where such a contract is not fair, a consumer is not bound by the contract terms.

The man had become overdrawn without being aware of it. The net result was that, for a period when he was in financial difficulties, the bank continued to levy charges for his unauthorised overdraft on his account until he stepped in and had it frozen at his own request. By that time, he was £1,300 overdrawn and the judge commented that ‘it is undoubtedly the case that much of that sum comprises charges upon charges’. The bank would not allow the man to close the account and continued to levy charges on it, creating a ‘cycle of debt’.

In a long judgment (88 paragraphs), the Court concluded that where a party is relying on the terms of the contract being fair, it is the responsibility of that party to demonstrate that they are. The bank failed to demonstrate that its terms were fair and, in view of the inequality of their bargaining power, it was ordered to repay £743 plus interest for the appropriate period to the account holder.

As regards the damages caused by the bank reporting the customer to a credit reference agency, the Court concluded that it did not have that right after he had entered into the repayment agreement, with which he had complied. He was awarded £1,000 in damages.


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