Tweet
http://news.bbc.co.uk/1/hi/business/7052276.stm
Friday, 19 October 2007
Banks lay out overdraft defences
The UK's banks have formally defended themselves against accusations that they levy unfair charges on customers who go overdrawn without permission. Seven banks and the Nationwide building society have filed their defences with the High Court for a test case to be heard next January. The Office of Fair Trading (OFT) has accused the banks of imposing unfair terms in their customers' contracts. The banks argue that current consumer regulations do not apply.
Fee or penalty?
The hearing will be an attempt to settle an unprecedented wave of litigation which has swamped courts around the UK this year. Hundreds of thousands of people have been suing their banks, often successfully, for the return of overdraft fees levied when they went into the red without permission.
So far banks are estimated to have refunded about £570m to 329,000 customers, almost always as gestures of "goodwill" and without admitting any wrong doing. The legal issue hinges mainly on the 1999 Unfair Terms in Consumer Contract Regulations, which the OFT argues gives it the power to decide that the banks' charges may be unfair and should be reduced. But banks argue that the law does not apply as the charges are in fact fees for a core service. "Those fees are... an essential feature of the bargain made between Abbey and its customer," argues the Abbey in its defence. "They therefore constitute an integral part of the price for the services provided by Abbey," it adds.
Fall back arguments
The banks also argue that as their charges are fees for a service, they cannot be judged as unfair penalties under common law. Some banks back this up by pointing out that they do not oblige customers to stay in the black; if the person wants to go overdrawn without permission they simply have to pay extra for the privilege.
They also claim that to be found guilty of charging unfair fees then under the rules they have to be shown to have been acting in bad faith. This they deny, saying they tell their customers in plain English exactly what they are signing up for. "The charges cannot be contrary to the requirement of good faith or unfair provided that the bank deals with the customer fairly and openly at the time of the conclusion of the contract," says HSBC in its defence.
Marc Gander, of the Consumer Action Group, disputed the banks' claim. "The fact that they have paid out about half a billion pounds to prevent the issue going any further in the lower courts does not show much good faith," he said.
Extravagant
Campaigners against bank charges say the banks' arguments are bogus, designed simply to cloak the fact that the fees really are unfair penalties.
Estimates suggest the real cost to cost banks of bouncing a cheque, or sending a customer a letter telling them that they are overdrawn, is probably around £2 each time. No bank has yet provided an explicit explanation of how they calculate the fees they charge, although it is likely to be a key feature of any argument in court.
The Clydesdale bank, along with some of the others, comes close to mounting a defence of their charges, saying "they have a justifiable commercial purpose" and that "such terms or charges are neither unconscionable nor extravagant".
Friday, 19 October 2007
Banks lay out overdraft defences
The UK's banks have formally defended themselves against accusations that they levy unfair charges on customers who go overdrawn without permission. Seven banks and the Nationwide building society have filed their defences with the High Court for a test case to be heard next January. The Office of Fair Trading (OFT) has accused the banks of imposing unfair terms in their customers' contracts. The banks argue that current consumer regulations do not apply.
Fee or penalty?
The hearing will be an attempt to settle an unprecedented wave of litigation which has swamped courts around the UK this year. Hundreds of thousands of people have been suing their banks, often successfully, for the return of overdraft fees levied when they went into the red without permission.
So far banks are estimated to have refunded about £570m to 329,000 customers, almost always as gestures of "goodwill" and without admitting any wrong doing. The legal issue hinges mainly on the 1999 Unfair Terms in Consumer Contract Regulations, which the OFT argues gives it the power to decide that the banks' charges may be unfair and should be reduced. But banks argue that the law does not apply as the charges are in fact fees for a core service. "Those fees are... an essential feature of the bargain made between Abbey and its customer," argues the Abbey in its defence. "They therefore constitute an integral part of the price for the services provided by Abbey," it adds.
Fall back arguments
The banks also argue that as their charges are fees for a service, they cannot be judged as unfair penalties under common law. Some banks back this up by pointing out that they do not oblige customers to stay in the black; if the person wants to go overdrawn without permission they simply have to pay extra for the privilege.
They also claim that to be found guilty of charging unfair fees then under the rules they have to be shown to have been acting in bad faith. This they deny, saying they tell their customers in plain English exactly what they are signing up for. "The charges cannot be contrary to the requirement of good faith or unfair provided that the bank deals with the customer fairly and openly at the time of the conclusion of the contract," says HSBC in its defence.
Marc Gander, of the Consumer Action Group, disputed the banks' claim. "The fact that they have paid out about half a billion pounds to prevent the issue going any further in the lower courts does not show much good faith," he said.
Extravagant
Campaigners against bank charges say the banks' arguments are bogus, designed simply to cloak the fact that the fees really are unfair penalties.
Estimates suggest the real cost to cost banks of bouncing a cheque, or sending a customer a letter telling them that they are overdrawn, is probably around £2 each time. No bank has yet provided an explicit explanation of how they calculate the fees they charge, although it is likely to be a key feature of any argument in court.
The Clydesdale bank, along with some of the others, comes close to mounting a defence of their charges, saying "they have a justifiable commercial purpose" and that "such terms or charges are neither unconscionable nor extravagant".
