Banks Set For Day In Court

Banks set for day in court on charges issue

• Story by: Joy Dunbar and Roger Pearson
• Magazine: FinancialAdviser
• Published Thursday , May 01, 2008

A judge rules in favour of the Office of Fair Trading in a landmark ruling over bank overdraft charges


The UK’s biggest high-street banks have lost a test case concerning overdraft charges after a top judge paved the way for them to be sued for allegedly over-charging their customers.
In a landmark decision, Mr Justice Andrew Smith backed the Office of Fair Trading who argued that the unfair terms regulations can be applied to overdraft charges imposed by the banks.
Royal Bank of Scotland, Abbey, Barclays, Lloyds TSB, Nationwide Building Society, HSBC and HBoS collectively went to court over the issue.
However, the judge warned that last week's ruling did not necessarily mean that the terms imposed by the banks were unfair.
Ex-gratia, without precedent, repayments in 2007:
Bank£mBarclays Bank 116 Clydesdale Bank 11HBoS 122 HSBC 116 Lloyds TSB 76 RBS Group 119
Source: Defaqto. Abbey and Nationwide will not disclose their repayments.

The FSA said that it will review the waiver that allows banks to put complaints about overdraft charges to one side in July this year - a year after the regulator enforced the waiver.
Consumer bodies, including the Citizens Advice and the FSA’s Consumer Panel, want the banks to accept this judgement and not to appeal so that there can be the swiftest resolution for consumers.
Adam Phillips, acting chairman of the Consumer Panel said: "Consumers have been left in the lurch with complaints about bank charges for long enough. The banks should not seek to stretch out the arguments by going to appeal over this judgment. They should accept it, so that the FSA can remove the current waiver for banks dealing with complaints and consumers can be treated fairly by their banks."
Digby Jacks, secretary for the Alliance for Finance, said: "There is no difference in the interests of retail customers and employees - they are all in the same boat. The banks should treat them a lot better and should not rip them off. Customers should also get better products from banks and insurers."
The court's decision is just the first step and could take up to four years if the banks appeal their decision, according to data researchers Defaqto. It added that it could affect all current account customers, even those who stay in credit.
David Black, principal consultant for banking for Defaqto, said: "The ultimate result of the ruling will have significant effects on the costs incurred for current account customers, including those who always stay in credit. If, as seems likely, a cap is imposed on unauthorised overdraft charges, I view it as inevitable that the current account options will change for consumers. We estimate that £600m was repaid in ex-gratia payments on this issue during 2007 although much of this relates to prior years."
The British Bankers' Association said that the banks remained committed to resolving the issue through the court. The association added the banks expect that the case will continue to progress as quickly as possible and it will work with the OFT to achieve that.
The timetable for the next steps in the test case will be decided by the court at a hearing on 22 May.

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[Shazzaw]

Re: Banks Set For Day In Court

I find this statement immense:-

"Adam Phillips, acting chairman of the FSA Consumer Panel said: "Consumers have been left in the lurch with complaints about bank charges for long enough. The banks should not seek to stretch out the arguments by going to appeal over this judgment. They should accept it, so that the FSA can remove the current waiver for banks dealing with complaints and consumers can be treated fairly by their banks."

Surely if the FSA's own Consumer Panel are stating this the FSA have to listen and act or let's be honest what is the point at all in such a panel existing???? (I'm assuming here that the FSA Consumer Panel is sanctioned by and financed by the FSA)

Even if the banks don't accept it then whats stopping the FSA from removing the waiver that they themselves have put in place!???

Here's hoping the FSA will act upon the comments of their own Consumer Panel.

[EXC]

Re: Banks Set For Day In Court

The Consumer Panel was established to give the appearance that consumers were somehow represented at the FSA. The FSA don't listen to a word they say.

[Shazzaw]

Re: Banks Set For Day In Court

Kind of guessed that would be the case EXC!!

So in all honesty they - as an organistion - are a complete and utter waste of time I take it.

Never mind - maybe good for the media to pick up on the fact that the FSA's own Consumer Panel are pro lifting the waiver.

[argentarius]

Re: Banks Set For Day In Court

They didn't say they were pro lifting the waiver, whatever.

They said that the waiver should be lifted, because they hope that the banks won't appeal ... meaning that they see the two as being inextricably linked.

As the banks will appeal, their hope is in vain.

[Shazzaw]

Re: Banks Set For Day In Court

Fair comment Arg - reading back I think I have mis-interpretated the comments.

I must admit that I personally do enjoy reading your posts even though they are not - be honest - what I want to hear as unfortunately I have alot riding on being able to reclaim charges and I guess only want to hear the positive take that we'll all win in the end.

As an aside - and without wishing to waffle - your take on things reminds me of a couple years ago when I was very, very close to spending a lot of money of training up as a Home Inspector which the Govt had advised hundreds would be needed to produce Home Condition Reports for the soon to be introduced Home Information Packs that the Govt were introducing. I spent a lot of time on a forum where one guy put the case that the Home Inspections simply wouldn't happen. He got shot down by many, many poor individuals who had spent a great deal of time and money on training to be Home Inspectors who simply didn't want to hear his take on things and just wanted to hear the positives. He - admirably continued to give his take on things and guess waht - he was right. The govt u-turned on Home Infromation Packs containing the vital element of Home Condition Reports that this poor people had relied on.

So, whilst - being honest - I only want to hear about how the banks will without doubt have to pay everyones charges back unconditionally I personally do appreciate your take on things and hope that your with all of us in hoping for a fair result at some point in the future.

Also ARG could I ask your honest take on things as to what you really see will eventually happen?? Lets say we're 3 years down the line and we were discussing about what happened about the Consumer revolt against Bank Charges back in 2008 - what do you think would have been the eventual outcome??

Would appreciate your comments - whether its the news I want to hear or not!!

S

[scoobydoo]

Re: Banks Set For Day In Court

Pin your ears back it could be a long post

[argentarius]

Re: Banks Set For Day In Court

Interesting challenge, Shazzaw, and thanks for your kind words. Scooby - I hope that this isn't too long for you!

Obviously I can't be certain what will happen, any more than anyone else. So I'd appreciate not getting slagged off (too much!) for suggesting things which anyone finds unpalatable - it's just a personal guess.

I believe that the banks will appeal the present decision, because several aspects of it will be unacceptable to them:

- the idea that there is no service involved in rejecting a payment, and therefore no charge can be levied (and I think they'll win that); and
- the idea that UTCCR can apply at all (and they may well lose that, but I'm not sure that the OFT will successfully impose a cap as low as the £12 one applying to credit cards, if it's allowed to impose a cap at all).

Regarding historic agreements, I think the penalty argument has a lot more mileage than re current agreements and a future ruling may state this. Whether the banks bother to appeal that part of it will be interesting to see ... they may think it's worth moving on and forgetting about the really old stuff even though it's a lot of money at stake. Having said that, I don't see an outcome which requires automatic refunds as very likely and hence the amount truly at risk will be a lot less than the total theoretical amount.


Regarding the future, I believe that the banks can quite reasonably reword their agreements such that their total charge for total package of benefits argument is legally acceptable, meaning that (in a few years) they will quite likely be charging the same amount as they are now, but in a slightly different way. I've previous suggested, for example, that I can't see anything stopping banks charging a fixed account charge of £x per month (where £x is a large amount) but waiving the charge if the customer meets some conditions - e.g. not going overdrawn without permission. This is how credit cards work, after all - they have a horrible interest rate, but the interest is waived if you pay in full by the due date.

So, I think in a few years we'll look back and:

- those reclaiming amounts under historic terms are quite likely to have been paid out on the basis that the charges were penalties;
- those reclaiming amounts under current terms are significantly less likely to have been paid out, because the amounts were not penalties - even if they are assessed under UTCCR, there's no guarantee that they will be proven unfair, and even if they are proven unfair, there won't necessarily be full settlement;
- and those running their accounts under the future terms will quite likely be paying as much, in aggregate, in bank charges as they are today.

I should emphasise that I reckon it's quite likely that the allocation of charges between customers will differ from current arrangements - possibly with an "averaging out" where most people (particularly those currently paying nothing or very little indeed) pay more, but those currently paying the most probably pay less. To some extent that's already happening - I pay my bank many times more in charges for my current account now than the very few pence a year I used to pay in interest, because they've re-balanced the charges to some extent.


Obviously, bits of everything I've said above will prove to be wrong, so I look forward to people reminding me of my rash words as time goes by!

[Shazzaw]

Re: Banks Set For Day In Court

Just wanted to say many thanks ARG for taking the time to give us your thoughts - I certainly appreciate them and I sincerely hope you're right with regards to claiming back historic charges (at some point in the future!)

Maybe I've been too focused on worrying about historic charges rather than future charges but in your view would you say that the banks are more concerned about protecting their future charges at a similar level as they currently are and would 'yield' on the current backlog of claims in their systems concerning past charges??

Thanks again.

[argentarius]

Re: Banks Set For Day In Court

I wouldn't go quite as far as saying what you have suggested, but I think that there's a reasonable chance that the banks will reach a point where they are happy enough with the future position and hence decide not to push too hard with regard to the past.

But if they are completely unsuccessful with regard to future charges, there won't be anything to lose by pushing all the way on the historic ones.