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Parliamentary Bill to prevent excessive bank charges
Whilst looking for something else I came across a Bill which received its first reading on 29th April 2009, introduced by Mr. Mohammad Sarwar (MP Glasgow Central ) to prevent excessive Bank charges or from being levied consumers.
This just happened to be on the same day as the Gurkha settlements Rights reading so presumably was drowned under the publicity which that received, below is a full statement which is scheduled for a second reading on Friday 16 October, and is happening irrespective of the OFT test case.
This would give all of us sufficient time to approach our MP's and ask them if they will be supporting the Bill, and if not, why?
Prevention of Excessive Charges
Motion for leave to introduce a Bill (Standing Order No. 23)
1.33 pm
Mr. Mohammad Sarwar (Glasgow, Central) (Lab): I beg to move,
In recent years, members of the public have been forced to pay disproportionately high bank charges for modest contractual failures. For example, if a family is late in paying their mortgage they may incur an arrears fee of £60 each month. Over two years those charges can add up to almost £1,500.
In 1998, the average bank charge for customers was £12. By 2006, it had jumped to more than £67—with a £39 charge per declined item, a £28 monthly fee and 30 per cent. unauthorised overdraft interest—which is a 558 per cent. increase in eight years. Bank charges are imposed not just for exceeding an agreed overdraft by a few pounds, but for the act of merely attempting to do so. Typically, they penalise people when they are at their most vulnerable in life and bear no relation to the sums involved.
For example, a constituent’s wages fell because of illness and she was unable to pay four direct debits one week. Her bank imposed default charges of £184, while her creditors imposed individual “failed direct debit” charges of £25, totalling £100. None of her bills has been paid, yet a staggering £284 of charges was imposed—the equivalent of four weeks’ statutory sick pay. The imposition of these excessive charges is forcing hundreds of thousands of individuals into a spiralling cycle of debt and poverty.
We protect individuals against unfair business practices by regulating consumer contracts. The regulations on unfair terms in consumer contracts provide protection for consumers against excessive charges. They allow the court to declare charges as unenforceable if a contractual term requires a consumer to pay a disproportionately high sum in compensation for failing to do something.
There are two major weaknesses with the protection afforded by these regulations.
They are reactive, in that they require individuals to opt in. That means taking a court action, and even then it could take months or years to obtain protection. In the meantime, people continue to suffer from the unfair charges—in addition to which, we know that many people, particularly frail or elderly constituents, will be reluctant to take court proceedings. Why should they have to do so?
Secondly and more worryingly, powerful financial institutions appear able to evade consumer law protections. In 2006, the British Bankers Association claimed bank charges were fair because it really did cost £39 to send a computer-generated letter. That justification was dropped a year or so later when banking whistleblowers revealed that the true cost of these charges was between £1 and £2.
More recently, most UK banks have altered their terms and conditions to avoid the common law prohibitions on penalty charges, as well as arguing that default charges were truly fees for requesting an informal overdraft—an “overdraft” which would generally be automatically declined.
In July 2007, the Office of Fair Trading launched its bank charges test case, with the full co-operation of the major high street banks. While this case has progressed, the banks have continued to impose excessive charges on customers. At the same time, most customers are being prevented from seeking a refund of unfair charges pending the outcome of the test case. Clearly, this position suits the banks well, and it is hardly surprising that even though they have lost the preliminary rounds of this case before the High Court and the Court of Appeal, they are now pursuing a further appeal to the House of Lords.
While it is for the courts to decide whether the banks are right or wrong in terms of the existing law, I believe there is now an overwhelming case for providing UK consumers with better legal protection in this area. The Bill would overcome current statutory law inadequacies and would require any default charge or fee in a consumer contract to be proportionate and fair. This safeguard would provide protection for all consumers throughout the UK.
Protection would apply to any contract currently regulated by the Consumer Credit Act 1974, or any contract where one of the parties was a consumer. A consumer is defined as any “natural person” who enters into a contract “outside his or her trade, business or profession”.
Also included would be contracts for banking services regulated under the 1974 Act.
Clause 1 of my Bill would make it unlawful for a business to impose a charge, fee, or series of charges and fees for a consumer’s failed or unauthorised transaction unless those charges were valued at no more than 2.5 per cent. of the transaction. That would ensure that the value of charges was always proportionate to the value of the unauthorised or failed transaction.
Returning to my example of a constituent with four bounced direct debits, if the total value of those debits was £400 the maximum overall charge would be reduced to £10 under my Bill. Whereas most companies would impose £25 for unpaid direct debit charges—resulting in an additional £100 of charges—the maximum that could be levied under my Bill would again be £10. So, the charges under my Bill would be no more than £20, which can be set against the excessive £284 that would be imposed under the current system.
I believe this proposal to be both fair and proportionate, having regard to the fact that most businesses have efficient computerised credit control systems whereby standard letters, e-mails or automated telephone calls will typically cost around £1 or less to produce and dispatch. The present system of charging is, I believe, indefensible in terms of the effects it is having on our society, particularly on its poorest and most vulnerable members, especially in the current economic climate. The system simply pushes people into unnecessary financial hardship and exposes countless households to eviction and repossession.
I hope that hon. Members will support my Bill to protect vulnerable people from excessive and unfair charges. I am pleased to say that the Bill commands support from hon. Members from all the main political parties in this House.
Question put and agreed to.
Ordered,
That Mr. Mohammad Sarwar, Mr. Jim Devine, Mr. Jim McGovern, Willie Rennie, Mr. Tom Harris, Mr. Virendra Sharma, Mr. Ian Davidson, Lindsay Roy, Mark Fisher, Jim Sheridan, Mr. Charles Walker and Ms Dari Taylor present the Bill.
Mr. Mohammad Sarwar accordingly presented the Bill.
This just happened to be on the same day as the Gurkha settlements Rights reading so presumably was drowned under the publicity which that received, below is a full statement which is scheduled for a second reading on Friday 16 October, and is happening irrespective of the OFT test case.
This would give all of us sufficient time to approach our MP's and ask them if they will be supporting the Bill, and if not, why?
Prevention of Excessive Charges
Motion for leave to introduce a Bill (Standing Order No. 23)
1.33 pm
Mr. Mohammad Sarwar (Glasgow, Central) (Lab): I beg to move,
- That leave be given to bring in a Bill to prevent excessive charges or fees from being levied on consumers; and for connected purposes.
In recent years, members of the public have been forced to pay disproportionately high bank charges for modest contractual failures. For example, if a family is late in paying their mortgage they may incur an arrears fee of £60 each month. Over two years those charges can add up to almost £1,500.
In 1998, the average bank charge for customers was £12. By 2006, it had jumped to more than £67—with a £39 charge per declined item, a £28 monthly fee and 30 per cent. unauthorised overdraft interest—which is a 558 per cent. increase in eight years. Bank charges are imposed not just for exceeding an agreed overdraft by a few pounds, but for the act of merely attempting to do so. Typically, they penalise people when they are at their most vulnerable in life and bear no relation to the sums involved.
For example, a constituent’s wages fell because of illness and she was unable to pay four direct debits one week. Her bank imposed default charges of £184, while her creditors imposed individual “failed direct debit” charges of £25, totalling £100. None of her bills has been paid, yet a staggering £284 of charges was imposed—the equivalent of four weeks’ statutory sick pay. The imposition of these excessive charges is forcing hundreds of thousands of individuals into a spiralling cycle of debt and poverty.
We protect individuals against unfair business practices by regulating consumer contracts. The regulations on unfair terms in consumer contracts provide protection for consumers against excessive charges. They allow the court to declare charges as unenforceable if a contractual term requires a consumer to pay a disproportionately high sum in compensation for failing to do something.
There are two major weaknesses with the protection afforded by these regulations.
They are reactive, in that they require individuals to opt in. That means taking a court action, and even then it could take months or years to obtain protection. In the meantime, people continue to suffer from the unfair charges—in addition to which, we know that many people, particularly frail or elderly constituents, will be reluctant to take court proceedings. Why should they have to do so?
Secondly and more worryingly, powerful financial institutions appear able to evade consumer law protections. In 2006, the British Bankers Association claimed bank charges were fair because it really did cost £39 to send a computer-generated letter. That justification was dropped a year or so later when banking whistleblowers revealed that the true cost of these charges was between £1 and £2.
More recently, most UK banks have altered their terms and conditions to avoid the common law prohibitions on penalty charges, as well as arguing that default charges were truly fees for requesting an informal overdraft—an “overdraft” which would generally be automatically declined.
In July 2007, the Office of Fair Trading launched its bank charges test case, with the full co-operation of the major high street banks. While this case has progressed, the banks have continued to impose excessive charges on customers. At the same time, most customers are being prevented from seeking a refund of unfair charges pending the outcome of the test case. Clearly, this position suits the banks well, and it is hardly surprising that even though they have lost the preliminary rounds of this case before the High Court and the Court of Appeal, they are now pursuing a further appeal to the House of Lords.
While it is for the courts to decide whether the banks are right or wrong in terms of the existing law, I believe there is now an overwhelming case for providing UK consumers with better legal protection in this area. The Bill would overcome current statutory law inadequacies and would require any default charge or fee in a consumer contract to be proportionate and fair. This safeguard would provide protection for all consumers throughout the UK.
Protection would apply to any contract currently regulated by the Consumer Credit Act 1974, or any contract where one of the parties was a consumer. A consumer is defined as any “natural person” who enters into a contract “outside his or her trade, business or profession”.
Also included would be contracts for banking services regulated under the 1974 Act.
Clause 1 of my Bill would make it unlawful for a business to impose a charge, fee, or series of charges and fees for a consumer’s failed or unauthorised transaction unless those charges were valued at no more than 2.5 per cent. of the transaction. That would ensure that the value of charges was always proportionate to the value of the unauthorised or failed transaction.
Returning to my example of a constituent with four bounced direct debits, if the total value of those debits was £400 the maximum overall charge would be reduced to £10 under my Bill. Whereas most companies would impose £25 for unpaid direct debit charges—resulting in an additional £100 of charges—the maximum that could be levied under my Bill would again be £10. So, the charges under my Bill would be no more than £20, which can be set against the excessive £284 that would be imposed under the current system.
I believe this proposal to be both fair and proportionate, having regard to the fact that most businesses have efficient computerised credit control systems whereby standard letters, e-mails or automated telephone calls will typically cost around £1 or less to produce and dispatch. The present system of charging is, I believe, indefensible in terms of the effects it is having on our society, particularly on its poorest and most vulnerable members, especially in the current economic climate. The system simply pushes people into unnecessary financial hardship and exposes countless households to eviction and repossession.
I hope that hon. Members will support my Bill to protect vulnerable people from excessive and unfair charges. I am pleased to say that the Bill commands support from hon. Members from all the main political parties in this House.
Question put and agreed to.
Ordered,
That Mr. Mohammad Sarwar, Mr. Jim Devine, Mr. Jim McGovern, Willie Rennie, Mr. Tom Harris, Mr. Virendra Sharma, Mr. Ian Davidson, Lindsay Roy, Mark Fisher, Jim Sheridan, Mr. Charles Walker and Ms Dari Taylor present the Bill.
Mr. Mohammad Sarwar accordingly presented the Bill.
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