OFT to focus investigation on overdraft charges on Lloyds TSB, HSBC and Clydesdale

[Amethyst]

OFT to focus investigation into unarranged overdraft charges on three banks

39/09 3 April 2009

The OFT has announced that it is to streamline its investigation into unarranged overdraft charges by focusing on the terms of three banks in particular. The aim is to progress the case in the shortest and most efficient way possible.


The OFT believes that the terms of the three selected banks provide the best representative selection of all the banks' unarranged overdraft charging terms, and therefore the outcome of this more focused investigation will be relevant to the assessment of other banks' terms.


The investigation will concentrate initially on the charging terms of Lloyds TSB, HSBC and Clydesdale. The OFT has written to all the banks under investigation to outline this decision.


It should not be assumed that the OFT is more or less likely to find the terms of these banks' unfair than those of the other banks. The investigation into the other banks' terms is merely on hold and the OFT has stressed that no banks' terms have been given a clean bill of health.

The OFT expects to reach final conclusions on fairness later this year.


NOTES
1. The Unfair Terms in Consumer Contracts Regulations 1999 (UTCCRs) protect consumers against unfair standard terms in contracts they make with sellers and suppliers. The Office of Fair Trading, together with certain other bodies, can take legal action to prevent the use of such terms.

2. In April 2007, the OFT announced its investigation into the fairness of terms providing for unarranged overdraft and returned item fees (referred to as 'unarranged overdraft charges'). This followed on from the OFT's initial review of unarranged overdraft charges, after which the OFT concluded that it shared public concern about the level and incidence of such charges.

3. In July 2007, the OFT entered into an agreement with the largest retail current account providers in relation to bringing a test case in order to ensure an orderly and timely resolution of the legal issues associated with its investigation.

4. In April 2008 the High Court gave a ruling, a key aspect of which confirmed the OFT's view that the OFT is entitled to assess the terms for fairness. The banks appealed this finding by the High Court to the Court of Appeal.

5. In August 2008, the OFT wrote to the eight banks setting out our approach to the assessment of fairness and, for seven of them, our concerns about their particular terms. This included a provisional view on the unfairness of particular terms and conditions that impose charges.

6. In February 2009 the Court of Appeal's judgment confirmed that the OFT is entitled to assess unarranged overdraft charging terms for personal current accounts for fairness.

7. The banks that are parties to the test case are Abbey National plc, Barclays Bank plc, Clydesdale Bank plc, HBOS plc, HSBC Bank plc, Lloyds Banking Group plc, Royal Bank of Scotland Group plc, and Nationwide Building Society. Together these current account providers account for about 90 per cent of personal current accounts in the UK.

8. In July 2008, the OFT published a market study which concluded that the personal current account market is not working well for consumers and that there were specific concerns about the charging structure. See market study page.

9. In the course of its work on the issue the OFT has liaised closely with the Financial Services Authority.

[natweststaffmember]

Re: OFT to focus investigation on overdraft charges on Lloyds TSB, HSBC and Clydesdal

About time they focused on LloydsTSB

[Amethyst]

Re: OFT to focus investigation on overdraft charges on Lloyds TSB, HSBC and Clydesdal

Interesting, throughout the penalty charges judgment many of the banks referred to Clydesdale and it seems to have been decided that most of the banks terms were materially similar to Clydesdales and in Justice Smiths original judgment back in April he used Clydesdales terms as a respresentative sample with regards to penaltys. They were also deemed in PIL.

Lloyds the OFT can only possibly look at current terms as there werent any terms historically.

HSBC havent changed theirs since the start of the test case have they?


Will they be looking at the actual CURRENT terms (ie in force today) or the current terms from when the test case started and those thus far judged to be assessable under UTCCR ?

[natweststaffmember]

Re: OFT to focus investigation on overdraft charges on Lloyds TSB, HSBC and Clydesdal

I think we need the HoL decision first really.

[Amethyst]

Re: OFT to focus investigation on overdraft charges on Lloyds TSB, HSBC and Clydesdal

This order outlines the terms being looked at

http://www.oft.gov.uk/shared_oft/per...complete_1.pdf

[Amethyst]

Re: OFT to focus investigation on overdraft charges on Lloyds TSB, HSBC and Clydesdal

BBC NEWS | Business | OFT narrows bank charges inquiry

But, as the investigation continues, the OFT said that the terms and conditions of three of the banks were representative of all of them and so it would be conducting a "more focused" inquiry.
"The investigation into the other banks' terms is merely on hold and the OFT has stressed that no banks' terms have been given a clean bill of health," an OFT spokesman said.
It expects to publish its findings on the fairness of overdraft charges by the end of the year.
The latest move by the OFT has been welcomed by supporters of both sides of the dispute.
"The OFT believe that by looking at a representative sample of bank terms and conditions, the investigation process will be streamlined and shortened," said a spokesman for the British Bankers' Association.
"The banks certainly welcome this initiative and we will continue to co-operate fully and constructively to the ongoing inquiry."
Louise Hanson, head of campaigns at the consumers' association Which?, said: "We are pleased that the OFT is doing whatever it takes to bring this saga to an end as quickly as possible.
"We welcome its assurances that all the banks are still within its sights and we remain confident that the unauthorised overdraft charges of all banks will be found to be unfair."

[EXC]

Re: OFT to focus investigation on overdraft charges on Lloyds TSB, HSBC and Clydesdal

OFT Updated Q&As 3 April

http://www.oft.gov.uk/shared_oft/per...ksqa030409.pdf

[natweststaffmember]

Re: OFT to focus investigation on overdraft charges on Lloyds TSB, HSBC and Clydesdal

"While Barclays is a signatory to the litigation agreement, it had introduced new terms during
the investigation. So as not to delay our investigation unduly, we concentrated on the terms
of the remaining seven firms."

That was the one thing that struck me.

[Amethyst]

Re: OFT to focus investigation on overdraft charges on Lloyds TSB, HSBC and Clydesdal

text of Q&A re three banks

1. Why has the OFT decided to focus the investigation on three banks?

In order to progress the investigation in the shortest and most efficient way
possible, we have decided to concentrate initially on the unarranged overdraft
charging terms of Lloyds TSB, HSBC and Clydesdale. We have written to all the
banks under investigation to outline this decision.

We believe that the terms of the three selected banks provide the best
representative selection of all the banks' unarranged overdraft charging terms,
and therefore the outcome of this more focused investigation will be relevant to
the assessment of other banks' terms.

It should not be assumed that the OFT is more or less likely to find the
unarranged overdraft charging terms of these selected banks unfair than those
of the other banks.


2. What happens to the banks not selected?

The investigation into the other banks' terms is merely on hold. None of the
banks' terms have been given a clean bill of health. We are committed to
resolving the issue of the fairness of the charges for all consumers as quickly
and efficiently as possible.


3. How does the decision to focus on three banks affect the ongoing legal
proceedings?

Our investigation continues in parallel to any legal proceedings. If our
investigation concludes that the banks' unarranged overdraft charging terms are
unfair, we will work with banks to identify how any subsequent litigation can be
managed sensibly and efficiently.


4. Does the OFT think the banks' terms are unfair?

In August 2008, we wrote to the seven banks and one building society setting
out our approach to the assessment of fairness and, for seven of them, our
concerns that the unarranged overdraft charging terms may be unfair. Following
the banks' responses to that letter, our concerns remain and we are continuing
to progress the investigation, in dialogue with the banks, to reach a final
decision on fairness.1


5. What is the next step in the investigation?
On 31 March 2009, we issued the selected banks with a detailed request for
financial and operational information relating to their unarranged overdraft
charging terms, which we will then need to analyse in some detail.
6. When do you expect this matter to be finally decided?

We expect to reach a final decision on the fairness of the unarranged overdraft
charging terms later this year. If this decision is disputed, subsequent litigation
may ensue.


7. The investigation appears to be taking a long time. Why is this?

We have necessarily adopted a rigorous approach to our investigation. Our
timeline is largely dictated by the practical constraints of obtaining and analysing
the required information from the banks. By streamlining our investigation to
three banks, we will progress it in the shortest possible time.

We have strong working relationships with all parties, including the banking
industry and regulatory authorities, to ensure continued support for the shared
objective of determining the relevant issues as quickly as possible.


8. Does part ownership of some of the banks by the government affect the
investigation?
Our investigation is unchanged by the part ownership.

[EXC]

Re: OFT to focus investigation on overdraft charges on Lloyds TSB, HSBC and Clydesdal

----- Original Message -----
From: Kate Farrow
To: EXC
Sent: Friday, April 03, 2009 11:43 AM
Subject: Updated personal current account information


Dear Nick,

If you have any questions with regards to the media statement and Q&A we published this morning, please feel free to get in touch.

Kind regards,
Kate
Kate Farrow | Project Team - PCA UTCCRs| Services Group| 1E/01| T: 020 7211 8816


From: EXC
Sent: 07 April 2009 12:24
To: Kate Farrow
Subject: Re: Updated personal current account information



Hi Kate

Many thanks for giving us this opportunity. I'll try and keep the questions to a bare minimum and give you some initial context to them for assistance.

Firstly we welcome the press release and updated Q&As. Any action that would speed up the conclusion of the test case and investigation, particularly in relation to those waiting to have their claims progressed, is helpful. However I am a little concerned that by narrowing the focus of your investigation to 3 banks in order to base your conclusions on fairness for the remaining 5 may lead to these banks disputing the validity of your findings on them. We would appreciate some reassurance that the OFT can apply the results of the sample 3 banks to the industry as a whole without it being subsequently contested.

Your current Q&As state that ''Our timeline is largely dictated by the practical constraints of obtaining and analysing the required information from the banks''. Clearly the test case and UTCCR investigation is taking far longer than the OFT hoped and the delays are unquestionably to the advantage of the banks and to the detriment of consumers. As the OFT's statement above suggests this would appear to be largely due to the unwillingness of the banks to comply with the litigation agreement which clearly states that ''The banks undertake to co-operate with the OFT in it's conduct of the investigation and in particular expeditiously to provide documents and information sought by the OFT in so far as practicable...''.

In addition the litigation agreement also states that ''....the bank/s in question will seek to have any such appeal, whether to the Court of Appeal or beyond (including a reference to the European Court of Justice, if any), heard on an expedited basis, and to undertake to take all reasonable steps to ensure that the said appeal is conducted and determined on an expedited basis as soon as is reasonably practicable''. Therefore in leaving it until the 29th of 30 days in which to apply to the House of Lords for leave to appeal the judgment of the Court of Appeal, the banks have, in my view, failed to comply with at least the spirit if not the conditions of the litigation agreement.

On the issue of when you expect the matter of fairness to be finally decided the current Q&As state that ''If this decision is disputed, subsequent litigation may ensue''. Naturally this is a major concern for the campaign - the fear being that this would involve several more years of hearings, appeals and further appeals. Nearly 2 years on from the test case announcement consumers still have no idea as to the nature of the litigation on the substantive issues, how long it might take to conclude and if the litigation will be required to determine the status of current claims and/or future charges.


Questions:

1) Is the OFT confident that by narrowing it's investigation to 3 banks it can apply it's findings to the other 5 banks without complication?

2) Are the banks complying with the litigation agreement with regards to their obligations to act in an expeditious manner during both the investigation and litigation process?

3) What does the OFT envisage the nature of any litigation on the substantive issues to be? ie would this be in the form of a Judicial Review?

4) If the OFT investigation concludes that the relevant charges are unfair, would historical terms be subject to any further litigation or would any finding that the terms are unfair provide sufficient legal clarity to progress claims to the banks and/or cases stayed in the County Courts?


Kind regards

Nick


----- Original Message ----- From: Kate Farrow
To: EXC
Sent: Tuesday, April 07, 2009 12:36 PM
Subject: RE: Updated personal current account information

Hi Nick

You're very welcome. I'll come back to you as soon as possible with the answers to these.

Kind regards,
Kate

Kate Farrow | Project Team - PCA UTCCRs| Services Group| 1E/01| T: 020 7211 8816