Proposed Judicial Review Proceedings

[EXC]

Hector Sants
Chief Executive
Financial Services Authority
25 The North Colonnade,
Canary Wharf,
London
E14 5HS

CC Clive Briualt Managing Director FSA

By letter & e-mail

1 September 2007



Dear Mr Sants

It is with some regret that the Financial Services Authority have been unwilling to provide me with the answer to the simple and straight-forward question as to why it introduced the complaints handling waiver announced on 27 July.

Having attempted unsuccessfully to obtain an answer to the question as to why the FSA introduced the complaints handling waiver - by telephone, e-mail, letter and most recently with a request under the Freedom of Information Act - a question that can not in any way be considered unreasonable - it appears the only course of action left open to me is through the courts as I have reached the conclusion that the FSA will not disclose the information as a matter of policy.

The repeated templated reasons I have been given for the waiver include the suggestion that it has been put in place ''in the interests of all consumers''. This is just nonsense. It is also plainly dishonest. And as the waiver was requested by the banks themselves, is the FSA seriously saying that this was a joint initiative with the banking industry to uphold the interests of the consumer? The FSA's decision to waive the rights of account holders to dispute these charges while the banks can continue to levy them while the OFT are challenging their very legitimacy in court is lamentable.

In his statement on the 27 July Clive Briault says that complaints ''continue to be dealt with in the current inconsistent way'', an uncharacteristically
honest assesment, albeit unwittingly, of the FSA's catastrophic failure to enforce it's complaint handling rules on not just a few individual firms but the entire retail banking industry.

Mr Briault wrote to the CEO's of all banks that offer current accounts with a letter entitled ''Handling complaints about unauthorised overdraft charges'' that included a recommendation that ''the senior management of all firms that operate current accounts need to review their firms' complaint handling procedures to ensure they comply with our standards, which include handling complaints fairly''.

The letter would have been a welcome break from the eerie silence of the FSA on the entire issue of overdraft charges were it not for the fact that it was published on the very day - and in fact several hours after - the FSA had already granted the waiver that legally absolved the responsibility of all banks from processing these complaints for an undetermined period - a graphic illustration of the FSA's breathe-taking contempt for the consumer who's interests it is charged with protecting.

Proposed Judicial Review Proceedings

I am now considering taking formal action against the FSA by way of Judicial Review. The decision by the FSA that I may seek to challenge would be the decision taken by the FSA to introduce the waiver as set out in the statement of 27 July 2007 and it's legitimacy.

A full “letter before claim”, as suggested by the Judicial Review pre-action protocol, will be sent to the FSA on 28 September 2007, which will set out all the relevant issues and name all other interested parties.

I give you notice of this proposed Judicial Review action in order to inform the FSA that the reason for the decision to introduce the waiver is not an issue that can be avoided, nor one that can be put far down the administrative list.

If the FSA can provide me with information that satisfies me that such a waiver is both necessary to facilitate the OFT's test case and is genuinely in the interests of consumers, or, that the waiver is revoked by the due date of the proposed review on 27 September, then it may be that judicial review proceedings may not be required.

Yours sincerely

crfx

[EXC]

Re: Proposed Judicial Review Proceedings

To:
EXC

From:
Natalie Baylis
Legal Advisor
General Council's Division
Financial Services Authority

cc. Laura Derby Chief Executive Office FSA

cc Simone Ferreira General Council's Division FSA

17 September 2007

Dear Mr EXC

COMPLAINTS HANDLING WAIVER: PROPOSED JUDICIAL REVIEW PROCEEDINGS

Thank you for your letter of 2 September about your proposed Judicial Review proceedings in relation to the complaints handling waiver issued on 27 July. Mr Sants has asked me to respond to your letter as it concerns proposed legal proceedings against FSA.

You have asked why the complaints handling waiver has been introduced, and you have said that you are dissatisfied with the answers you have received to that question from the FSA to date. I will try to provide you with as full an answer as I can to your question. I am afraid however that this will involve some repetition of points that have been made to you in correspondence so far, as the FSA's position has not changed from that set out to you in our initial replies.

The complaints handling waiver was introduced, after careful consideration by the FSA Board, under section 148 of the Financial Services and Markets Act 2000. The background to the decision has already been set out to you in e-mail correspondence, but is central to why the waiver was introduced and so I will set it out here.

For some time customers of banks and building societies have been complaining about the charges levied in relation to unauthorised overdrafts. The legal uncertainty about whether the charges were lawful or fair meant that complaints made by customers were being determined, but with inconsistant
outcomes for customers. Some customers were successful but others with similar complaints were not.

In September 2006 the Office of Fair Trading announced that it would undertake an investigation into the fairness or otherwise of certain terms in current account agreements. Since then there has been a significant increase in the number of claims made by customers against banks and building societies in relation to these charges, and in complaints and claims taken to the Financial Ombudsman Service
and to the courts.

The FSA considered that it was desirable for there to be further clarity as to how these complaints should be handled fairly and consistantly, by obtaining greater legal certaincy or otherwise.

The FSA was also concerned. following the results of thematic work that it undertook to access the extent to which firms were complying with the complaints handling rules in dealing with complaints about unauthorised overdraft charges, that there were significant deficiencies and important areas of weakness to their approach to handling these complaints.

At the end of July the OFT and certain banks announced an agreement to start a 'test case' in the high court for a declaration to resolve the legal uncertianties concerning the level, fairness and lawfulness of unauthorised overdraft charges.

In view of those developments, the FSA considered that it was not in the interests of consumers for complaints to continue to be dealt with inconsistancy by firms while the test case was still proceeding through the courts. Once the test case is resolved it is expected to give greater legal certainty in this area and to enable complaints about these charges to be handled fairly, consistantly and promptly
in the light of that greater certainty.

After careful consideration by the Board, the FSA decided to grant the complaints handling waiver to current account providers who consented to it's conditions. The vasr majority in terms of number and market share have done so.

The main effect of the waiver is to waive the rules that specify time limits for dealing with any complaint about the level, fairness or lawfulness of unauthorised overdraft charges. This means that the banks and building societies will not have to deal with these complaints within the normal time periods required by our rules. The waiver does not prevent customers from making complaints whilst it is in place, and firms with the waiver are required to log these complaints to be dealt with on resolution of the test case.

You have asked for information to satisfy you that the waiver is genuinely in the interests of consumers. I hope that the background to and the reasons for the decision which I have set out go some way to answering your question.In addition the waiver has a significant number of other safeguards built into it, in the form of conditions applying to the firms, which are designed to protect consumers.

I have enclosed a copy of the waiver direction with this letter for your information:

A Conditions (1), (2) and (3) in prargraph 12 are designed to ensure that customers and complainants are kept appropriately updated about the course of the test case, the waiver and there implications.

B Condition (4) relates to the procedure that banks and building societies must follow where they have made an offer to a customer to settle a complaint which has not yet been accepted.

C Under conditions (5) and (6) firms must keep records of complaints received and preserve records of current accounts so that they remain available for the consideration of existing and future complaints.

D Conditions (7) and ( make requirements on firms which are parties to the test case in relation to their conduct to the case.

E Condition (9) requires all firms to update the FSA about stays of relevant court proceedings obtained.

F Conditions (10) to (15) relate to the handling of complaints by firms during and after resolution of the test case. One important protection for consumers whose complaints relate to financial hardship. Condition (10) requires firms to ensure that complaints relating to financial hardship (and others which are not relevant to the waiver) are identified and progressed promptly in compliance with normal rules and timescales in the Disputes resolution: Complaints manual of the FSA
Handbook.

G Condition (12) prevents firms from taking into account the time period of the waiver to rely on a 'limitation' or time limit defence to a subsequent complaint by a customer.

H Condition (14) prevents a firm from seeking 'full and final settlement' of a complaint during the life of the waiver.

I Conditions (11) and (15) require firms to handle complaints effectively and swiftly and in accordance with the principles established by the test caseafter it has been resolved.

Finally, the waiver is of limited duration: it will end when the test case has been resolved or at the end of one year if earlier, and in addition the FSA may revoke the waiver at any time if the criteria for the waiver are no longer satisfied. The guidance in the waiver direction (paragraph 7) sets out the approach that the FSA intends to take to the planned review of the waiver at the end of September, to considering renewal of the waiver after a year and to reviewing continuing satisfaction of the criteria for the waiver throughout its duration.

You have also asked for information to satisfy you that the waiver is neccesary to facilitate the OFT's test case which is one of the reasons for the waiver set out in the press release and in information about the waiver on the FSA website. The waiver will facilitate the test case in that it will allow the test case to proceed ahead of the other outstanding (and future) complaints about these charges. Once the case is resolved it will then provide some legal certaincy against which those complaints can be judged, which should result in fairness and consistancy between the outcomes of those complaints.

We acknowledge that our decision will lead to inconvenience and delay for some consumers - particularly those who were in the advanced stages of making a claim - in that their complaint will now not be resolved for some time. However we are clear that, bearing in mind the background against which our decision was made, and the conditions which are contained in the waiver, it is in the broader interests of all consumers in the longer term.

I hope you have found the information in this letter helpful. It is a matter for you whether you still wish to challenge the FSA's decision by way of Judicial Review. We fully reserve the FSA's position in relation to any proceedings you may choose to bring. Should you decide to do so, however, you should be aware that it is our policy to recover from a claimant our costs of defending an action if unsuccessful legal proceedings are brought against us.

Yours sincerely

Natalie Baylis

[iancognito]

Re: Proposed Judicial Review Proceedings

Some customers were successful but others with similar complaints were not.

Hands up all those who were unsuccessful with their claims prior to the OFT test case announcement................msl:

Condition (10) requires firms to ensure that complaints relating to financial hardship (and others which are not relevant to the waiver) are identified and progressed promptly in compliance with normal rules and timescales in the Disputes resolution: Complaints manual of the FSA
Handbook.

Well that's interesting..............

[EXC]

Re: Proposed Judicial Review Proceedings

Hector Sants
Chief Executive
Financial Services Authority
25 The North Colonnade
Canary Wharf
London
E14 5HS


cc. Clive Briualt Managing Director FSA
cc. Natalie Baylis Legal Adviser FSA
cc. Rt Hon John McFall MP Chairman Treasury Select Committee


By letter & e-mail


19 September 2007



Dear Mr Sants

Proposed Judicial Review Proceedings

I refer to Ms Baylis's letter of 17 September. At 4 pages in length and with virtually no substance whatsoever, I certainly appreciate the effort and creativity expended in crafting it but I remain seriously dissatisfied with the response.

Let me remind you of the 2 questions I asked in my initial letter and Ms Baylis's response:

Q Why was the waiver necessary to facilitate the test case?

A 'The waiver will facilitate the test case in that it will allow the test case to proceed ahead of the other outstanding (and future) complaints about these charges.'

This response is meaningless. Outstanding and future complaints will have no bearing on the test case itself. Indeed the OFT case seeks only to establish a very narrow issue and will not, as Ms Baylis claims, deal with the lawfulness or fairness of the charges. The OFT has made this very clear. Also, the OFT has recently stated that the test case, although scheduled to be heard next year, is by no means certain to proceed at all, "If we do our own financial analysis, and they [the banks] come in with a number that is lower than our analysis would suggest is an unfair charge, there is no need for the court case to go forward". I am of course aware that the FSA can only introduce a waiver scheme as a result of it being requested by firms.

So the situation is thus: Banks have successfully requested the waiver on the premise that a future test case might proceed, dependent on an issue which is entirely within the banks control.

I have been assured by the OFT that the FSA not only offered no reasons whatsoever as to why the waiver should be introduced but have categorically stated that the waiver has no facilitary value to it's case.

Q Could you satisfy me that the waiver is genuinely in the interests of all consumer?

A Ms Baylis's response is astonishing. It simply 'sets out the background' to the test case but does not provide an answer.

The contention that ''some customers were successful but others with similar complaints were not'' couldn‘t be more misleading. The FOS have a 100 percent success record in upholding these complaints and of the many tens of thousands of court cases dealing with claims, defeats can be counted on the fingers of one hand. And so to suggest otherwise and then use this as the basis for introducing the waiver as a means to 'protect' consumers is laughable.


The FSA's repeated claims that the waiver ''has a significant number of other safeguards built into it'' is a area of particular concern. Most of these waiver ''safeguards'' are simply reminders of the FSA's own general rules that are already in place , regardless of the fact that all of the 'safeguards' are entirely dependent on the integrity of the banks - whose very integrity in fact, the FSA has voiced such grave doubts about as highlighted in the report on it's thematic work and letter to CEO's on the subject of complaints against these charges. I am amassing a growing amount of evidence that the conditions of the waiver are being routinely flouted, especially in cases of financial hardship.

As both these questions have not been answered to my satisfaction I would like to give you a final opportunity to answer them. Also, in the light of recent events since my original letter I wish to put 2 additional questions to the FSA:

1) Was the FSA aware, at the time the waiver was introduced, that the OFT would abandon the test case if a level of charge was agreed in the meantime and if not, can the FSA justify that the waiver should remain in place if the test case it is meant to facilitate is not at all certain to take place.


2) What mechanism does the FSA have in place to monitor if the conditions of the waiver are being met, which are due to be considered in it's 2 month review.

Finally I would like to make it absolutely clear to the FSA that if these questions are not answered to my satisfaction or that the complaints handling waiver is not revoked by the 2 month review date, I fully intend to commence Judicial Review proceedings against the FSA.


Yours sincerely

EXC

[biscuits]

Re: Proposed Judicial Review Proceedings

Go EXC, nice one!

[EXC]

Re: Proposed Judicial Review Proceedings

I've now received an e-mail from the FSA complaints department which relates to a complaint I made regarding my initial enquiries about the waiver decision. I did post this somewhere but due to FSA fatigue, I can't remember what thread it went up on.

The complaint essentially was an accusation that 2 FSA staffers had lied
to me and misrepresented the reasons given to me for the introduction
of the waiver. The complaints department has previously confirmed that
they will look at recordings of telephone conversations on which my complaints are based.

The e-mail (below) makes it clear that the FSA are now in breach of their complaints procedures and now want an extra 3 months to conclude their
investigation.

It appears that the complaints handling waiver granted to the banking
industry now applies to the FSA themselves.



Financial Services Aurhority

Direct line 0207 066 9870
Local fax 0207 066 1015
Email complaints@fsa.gov.uk

Private & Confidential

Date: 19 September
Our Ref 27492

Dear EXC

Your complaint against the FSA

Further to our emailed letter of 29 August 2007 and subsequent email exchanges,
this is to confirm we are still investigating your complaint under the FSA complaints scheme.

It is now four weeks since we entered your complaint into our Scheme and, unfortunately, we are yet to complete our investigation. We hope to complete our investigation and give you a substantive response to your complaint within the next four to12 weeks. If we are unable to issue our substantive response to your complaint within the next four weeks, we will provide you with a progress update at that time.

We initially outlined our understanding of your complaint and our proposals for the structure of our investigation in our letter of the 29 August: this was clarified in the subsequent email exchanges.

We will now proceed with our investigation on the basis of this understanding.

Yours sincerely

Craig Drury
Complaints Handler
Company Secretariat
Financial Services Authority

[EXC]

Re: Proposed Judicial Review Proceedings

Amidst more ducking and diving from the FSA on the question of how the
complaints handling waiver ''facilitates'' the test case, it appears that the
waiver will still be in place long after the January court date.

The FSA seem to be saying that if the OFT are sucessful in court, they would then have to go through the subsequent and no doubt lengthy process of determining the fairness and genuine pre-estimate of costs/penalties before the waiver can be revoked. Dragging the real cost of penalties out of 8 banks is not going to be a quick process by any stretch.



Dear crfx

Complaints Handling Waiver: Proposed Judicial Review Proceedings

Thank you for your further e-mail about you proposed judicial review proceedings.
In your e-mail you repeat the two questions you have asked in your earlier correspondence and set out two further questions.

Dealing first with the points you make in relation to our letter of the 17 September:

On facilitating the test case you make the point that the test case seeks only to establish a very narrow issue and will not deal with the lawfulness or fairness of the charges. You say that the case is not certain to proceed at all.

On the issue of whether the waiver is in the interests of all consumers, you dispute our point that similar complaints were resulting in different inconsistant outcomes. You have referred to the success rate of complaints to the Financial Ombudsman Service.You also express concern about the efficacy of the consumer safeguards built in to the waiver given the results of the FSA's thematic work on complaints handling and the evidence you have gathered or are gathering which you say conditions are being routinely flouted.

The test case

As you may be aware, in order to determine the relevant legal issues in an expeditious, fair and orderly way; the OFT and banks have agreed to have the test casedetermined in two stages. In summary, stage one of the case will focus on the determination of whether the relevant terms and charges can be assessed for fairness under the UTCCR 1999, and whether they are a charge for a service or a penalty in respect of breach of contract at common law. These are known as
'preliminary issues'. However, once the OFT has concluded it's investigation, and in the event that the arguments it has put forward in stage one are successful, then issues of fairness and genuine pre-estimate of costs/penalty will be determined subsequently at stage two of the proceedings. These are referred to in the test case as the 'substantive issues'.

The agreement between the parties on the scope of the case is a public document (agreement of 25 July 2007 between the OFT, the FSA and the litigant banks and building society). It also contains the parties' agreed proposed timetable for the progress of the test case. The paragraphs of the agreement which identify the preliminary issues and the substantive issues are paragraghs 1.4 and 3.1.

If the legal issues in the test case are resolved, then at that point it will be much clearer, in legal terms, whether a particular customers complaint about unauthorised overdraft charges should succeed or fail. If it is determined that the fairness test does apply. and the substantive issues are resolved, banks will be able to determine complaints by reference to a framework of what is fair and what is unfair. Where a customer refers a complaint to the FOS, the FOS will have a
clearer legal basis for finding whether the customer's complaint should be upheld.

Equally, if the preliminary issues are resolved in favour of the banks, that will also bring legal clarity. In that case banks and the FOS would be able to reject any complaints which were based on the allegation of unfairness under the 1999 Rgulations.

We believe that that resolution of the issues in the test case will create greater legal certainty which will benifit consumers who have outstanding complaints or who make complaints in the future. The outcome of the test case can be used to help all parties make consistent judgements about how those complaints should be determined.

We are following closely the OFT test case and will take that progress into account as part of the two month review. We have set out in some detail how the progress of the test case is likely to affect our decision about the continuation of the waiver in paragraph 7(2) of the waiver direction.

The two month review

We take the two month review of the waiververy seriously. We are gathering data from the banks for the purpose of the review and are liasingwith other bodies including the Banking Code Standards Board, the OFT, the FOS and a number of consumer groups. We are also considering information received from consumers about the banks' compliance with the conditions of the waiver. Where we consider it approriate, we are contacting banks to clarify information we have received about alleged breaches.

You say you have evidence that the conditionsof the waiver are being flouted. If you wish to send that evidence, we will be pleased to see it and will act on it accordingly.

Inconsistant outcomes

We remain of the view that firms' handling of complaints was leading to inconsistant outcomes for consumers. Our Dear CEO letter set out the results of our thematic work in this area. With regard to complaints to the FOS, we note that the FOS has also suspended work on all cases referred to it until the test case is resolved, and that the courts have granted stays pending the resolution of the test case in a significant number of claims.

Additional questions

You asked two additional questions in your e-mail. Regarding your question 1) which relates to whether the waiver can remain in place if the OFT test case is not certain to take place: as we have said, we are following the progress of the test case closely and we will take into account it's progress, or any lack of progress as we monitor continuation of the waiver. We have said publicly that we would expect to revoke the waiver in certain circumstances, including if no material progress was made in the case for no good reason.

Your question 2) asked what mechanisms the FSA had in place to monitor whether the waiver conditions were being met, for the purposes of the two month review. We have set out above what we are doing to gather evidence of compliance, with waiver conditions.

It remains a matter for you whether you wish to challenge the FSA's decision by way of judicial review. We reserve the FSA's position as to those proceedings and to any costs.

Yours sincerely

Natalie Baylis
Legal Adviser
General Council's Division
Financial Services Authority