Negotiating Line for the Consumer Rights Directive unfair charges ..... RESPONSE

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Re: Negotiating Line for the Consumer Rights Directive unfair charges ..... RESPONSE

We have exchanged consultation responses with the OFT - below.

I think it's very good. The BIS will surely consider the OFT's response the most authoritative from the consumer's perspective. And I'm glad to see that we're batting on the same wicket:

Legal Beagles' response:
''The issue in respect of what point of view should be taken in assessing whether a charge is part of the “essential bargain” was demonstrated aptly by the Supreme Court judgment in the Test Case. In that judgment, the Supreme Court gave considerable weight to the fact that 30% of the revenue of the banks was derived from these ancillary charges, a fact which could not have been known to any consumer. It is imperative, in our view, that business decisions which are intentionally withheld from consumers, or are otherwise unknowable to the average consumer, should not form the basis of what should be considered the “essential bargain”.''

OFT response:
''We think it is particularly important that a term should not become exempt from the fairness test solely on the basis that it generates such high levels of profit that it is critical to the business model of the trader.''

The OFT's response also includes this sweeping (and encouraging) statement:

''The best protection for consumers is competition, wherever it can realistically be expected to take place. However, most standard form contract terms are not subject to effective competition and therefore need to be open to assessment for fairness''.

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Re: Negotiating Line for the Consumer Rights Directive unfair charges ..... RESPONSE

It gets better. This is the Consumer Focus response and they're not pulling any punches. They're recommending the Australian 'upfront' approach.

Other highlights include:

''The customer is told that the current accounts are free when, for a large proportion of customers, this is simply not the case. The essential bargain needs to reflect the total cost to the consumer and that cost should be based on a relationship to actual cost or on a transparent cross-subsidy model. We currently have the worst of both worlds.''

''Once the bargain has been concluded a bank is in the peculiar position of providing a service and accessing a customer’s account without need for notification or separate permission to levy additional charges for those services. The customer is left to challenge after the event.''

''This seems to have been the intent of the original directive and the intent should be reflected and updated in the new directive and domestic regulation. All charges outside the essential bargain from the perspective of the average consumer should be assessable for fairness. The non-negotiable nature of many of these charges, the timing of them and the methods by which they are disclosed put the consumer at a significant disadvantage and this is, after all, a piece of consumer legislation.''

[Amethyst]

Re: Negotiating Line for the Consumer Rights Directive unfair charges ..... RESPONSE

Brilliant - we actually sound less extreme than Consumer Focus and the OFT lol.

Once the bargain has been concluded a bank is in the peculiar position of providing a service and accessing a customer’s account without need for notification or separate permission to levy additional charges for those services. The customer is left to challenge after the event.

That sounds like they might back our PCA market study proposal for seperate billing ? ( Updated Response to the PCA Report - Feb 2010 - Legal Beagles Consumer Forum )

[Budgie]

Re: Negotiating Line for the Consumer Rights Directive unfair charges ..... RESPONSE

The Consumer Focus response is excellent !

I knew I was in for a good read when I saw these opening comments

"The call comes following a Supreme Court judgement which has been widely criticised for entrenching unfairness and diminishing consumer’s ability to compare and exercise choice in the financial services market."

and

"Trust and confidence is undermined when the public perception of fairness is negated by technical obfuscation."

and

"The intent of consumer protection directives cannot be fulfilled when an assessment of the fairness of a transaction depends on a legal interpretation of the drafting of a provision. It is of great concern that a common sense definition of what a consumer believes they are paying for products or services, that which is clear and transparent and able to be quantified at the agreement stage, has not been given effect to."

However, although I am slightly biased, I do believe our own response is far more grounded and reasoned compared to the Consumer Focus response and the OFT response is a bit "timid".

On balance, the various responses I have read so far are all extremely well written, varied in their approach, but with a common theme and message that will hopefully do the job for which they are intended.

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Re: Negotiating Line for the Consumer Rights Directive unfair charges ..... RESPONSE

On balance, the various responses I have read so far are all extremely well written, varied in their approach, but with a common theme and message that will hopefully do the job for which they are intended.

I agree. They're all saying essentially the same thing but in different ways - which helps drive the message home. I've asked Which? for their response, which should be good too.

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Re: Negotiating Line for the Consumer Rights Directive unfair charges ..... RESPONSE

The Which? response to the consultation.

The thrust their exemption criteria very simple and effective but I think the subsequent provisions complicate it and make it potentially difficult to define.


''Accordingly, Which? considers a price should only be exempt from a fairness assessment if:

(i) the circumstances in which that price may be levied will definitely arise during the course of the contract; or

(ii) it is the only price that could be payable by the consumer under the
contract.

providing that price is one

> on which the business typically competes i.e. the headline/advertised/shop window price (as judged on the basis of the business’ marketing strategy and commercial practices); or

> that is otherwise prominently provided in good time to consumers prior to conclusion of the contract''

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Re: Negotiating Line for the Consumer Rights Directive unfair charges ..... RESPONSE

This is Out-Law's overview of the OFT response:

Consumer contract law should mandate price transparency, says OFT | Pinsent Masons LLP


I have asked BIS that at such time when the consultation process has concluded, if they will be publishing what the Government's negotiating line will be.

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Re: Negotiating Line for the Consumer Rights Directive unfair charges ..... RESPONSE

The BIS have confirmed that they will be publishing their proposed negotiating stance which should be later this month.

They won't be publishing the responses in full - just an overview of them - but we have requested complete copies of the banks' responses under the Freedom of Information Act.

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Re: Negotiating Line for the Consumer Rights Directive unfair charges ..... RESPONSE

The BIS have responded to the Freedom of Information request for the consultation responses of the banks and BBA. My thanks to Enaid.

They have released the responses of 3 banks - RBS, Santander & Lloyds - (attached below) but have withheld the rest under section 43 of the FoI Act (commercial confidentiality). This, I suspect, relates to information provided for questions 8 & 9 of the consultation which asks for an assessment of the impacts on the firm and the industry if the regulations were changed and may have included financial estimates.

RBS in particular have repeatedly cherry picked various conclusions from all three test case judgments to embellish their position - somehow missing the point that the consultation is all about proposed changes the law that the courts have previously given effect to, not to embed it.

It does seem apparent to me that there has been a certain amount of collaboration with these responses (on things like competition and transparency) which are supposed to be confidential prior to publication. I note that 2 banks used the term ''waterbed effect'' in their responses to the same question.


Here are some of the highlights with my thoughts in red.


RBS
''A provision that allowed charges to be assessed for unfairness if they were not, from the consumer’s perspective, part of the “essential bargain” would, as explained above, be highly uncertain in its operation. How are businesses and consumers to know what the “essential bargain” will be in any particular situation?'' [Well you know what the essential bargain is - you told the Supreme Court and they agreed. The reason the customer didn't know what it was is because you didn't tell them]

''Another significant consequence of subjecting prices to a fairness assessment is that the courts are given an increasingly large role as price regulators. Courts are inherently less suited to carry out this role than competition regulators……..The experience of the deluge of bank charges litigation in the County Courts (prior to the Supreme Court case) illustrates the potential impact on one industry of allowing judicial price control and the vast implications for the Court system if this type of price control is permissible. [This is nonsense. No UK court has ever assessed bank charges for fairness and as such you simply cannot conclude with any credibility that ''the courts are given an increasingly large role as price regulators'']


Santander
'‘Contingent’ and ‘ancillary’ charges should not be excluded from the price exemption. We also consider that there would be difficulties in interpretation as to whether a charge is ‘contingent’ or ‘ancillary’ '' [The charges are unequivocally contingent. J Smith found that the charges were triggered ''on an event'' and none of the higher courts took a differing view]

''We also have a concern that any uncertainty arising from the over complication of the price exemption provisions, would lead to litigation or claims from claims management companies. The credit and banking industry have in recent years experienced claims from claims management companies. In a significant number of cases the industry found that claims were without merit or a full assessment of each individual case had not been carried out by the claimant’s representative (as this would not be cost effective). The consumer’s interests were not always protected by these activities and in addition resources of the service providers were wasted in defending those claims which were without merit.''


Lloyds
‘Contingent’ and ‘ancillary’ charges should not be excluded from the price exemption. We also consider that there would be difficulties in interpretation as to whether a charge is ‘contingent’ or ‘ancillary’ [It's interesting that unlike Santander above, Lloyds are uncertain that the charges are not contingent]

''We also have a concern that any uncertainty arising from the over complication of the price exemption provisions, would lead to litigation or claims from claims management companies. The credit and banking industry have in recent years experienced claims from claims management companies. In a significant number of cases the industry found that claims were without merit or a full assessment of each individual case had not been carried out by the claimant’s representative (as this would not be cost effective). The consumer’s interests were not always protected by these activities and in addition resources of the service providers were wasted in defending those claims which were without merit. [What Lloyds are saying here is that the law should be framed in a way that renders it out if reach of the consumer because they might be exploited by CMCs]

[Amethyst]

Re: Negotiating Line for the Consumer Rights Directive unfair charges ..... RESPONSE

RBS

11 This does not mean that the contingent price terms could not be the subject of any fairness assessment. The Supreme Court in the OFT v Abbey National plc case confirmed that regulation 6(2)(b) only exempted assessment of fairness relating to the adequacy of prices. Other types of assessment are permitted. The equivalent exemption in Article 32(3) of the draft CRD operates in the same way.

[Amethyst]

Re: Negotiating Line for the Consumer Rights Directive unfair charges ..... RESPONSE

If their charges and prices were fair in the first place I don't think they would be so worried that they may have to repay consumers.

[EXC]

Re: Negotiating Line for the Consumer Rights Directive unfair charges ..... RESPONSE

Yes that caught my eye too.

I can't upload the Lloyds doc ('file invalid') so I've e-mailed it to you.

Happy reading......

[Amethyst]

Re: Negotiating Line for the Consumer Rights Directive unfair charges ..... RESPONSE

Lloyds response - WORD doc

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Re: Negotiating Line for the Consumer Rights Directive unfair charges ..... RESPONSE

Thanks Ame.

I forgot to mention that the BIS said that they didn't receive responses from HBOS, HSBC & Barclaycard.

[Amethyst]

Re: Negotiating Line for the Consumer Rights Directive unfair charges ..... RESPONSE

The ''WaterBed'' effect (not as 1970's porny as it sounds) Was introduced in the call for evidence originally

53. In the event that the Directive affects the revenue that certain businesses generate, there may be potential ‘waterbed’ effects as firms make up for their losses. For example, in the banking sector lower charges for unauthorised overdrafts may lead to the introduction of account keeping fees.

56. If contingent and ancillary charges were assessable on the grounds of unfairness, this could not only have the impact of enhancing customer protection but firms may then be subject to greater competitive pressures on all prices, including those that consumers possibly pay less attention to. This enhanced competitive incentive could have a number of potential beneficial effects for consumers, such as exerting downward pressure on overall prices and charges, boosting innovation and improving productivity, thereby contributing towards increased economic growth. If the cumulative impact of these effects are sufficient to offset the aforementioned “waterbed” effects, this could potentially lead to an overall increase in consumer welfare.

31
It is likely that in financial services and other industries there will be a move away from charging structures involving contingent and ancillary charges and towards charging structures involving unchallengeable (i.e. safe) headline prices. A “waterbed effect” could therefore be widespread increases to headline prices to cover all contingent costs, thereby having an adverse impact on consumers. Such a move will reduce consumer choice, and may operate to the detriment of many low income customers who, by carefully managing their affairs, enjoy services at very low cost under many of the pricing structures currently available.

oh and lol @ Santander

7. If so, do you think any of these charges are unfair and if so, why?


We do not propose to comment.