The proposal made, and then withdrawn as an addition to the financial service bill. The government favour voluntary change. House of Commons Public Bill Committee
Proposed amendment to the Financial Services Bill
Which? is the business name of Consumers’ Association, registered in England and Wales No. 580128,
a registered charity No. 296072. Registered Office 2 Marylebone Road, London NW1 4DF.
BANK CHARGES
As a result of the Supreme Court’s decision on bank charges, Which? wants to see the Unfair Terms
in Consumer Contracts Regulations 1999 (UTCCRs) amended to bring them in line with how the
Regulations were interpreted by the Court of Appeal (rather than the Supreme Court) in the bank
charges case. This will allow the OFT to assess them for fairness going forward and ensure that the
charges consumers face are fair and transparent.
We would propose an amendment along the following lines:
After Clause 27 insert new clause 27B:
(1) The Unfair Terms in Consumer Contract Regulations 1999 (SI
1999/2083) is amended as follows.
(2) After regulation 6(1), insert -
“1A Paragraph 2 shall not apply to contracts for the supply of financial
services.”
(3) After regulation 6(2) insert -
“3 In so far as it is in plain and intelligible language, the assessment of
a term in a contract for financial services shall not relate
(a) to the definition of the main subject matter of the contract, or
(b) to the adequacy of the main price or remuneration, as against the goods
or services supplied in exchange.
4 Where a term of a contract provides for the charging of a consumer and the
circumstances in which that charge can be imposed need not arise during the
term of the contract, then such price or remuneration shall not fall within
the main price or remuneration for the purposes of paragraph 3.
5 If, for the purposes of paragraph 3 there is doubt about what represents
the main price or remuneration, the interpretation which is most favourable
to the consumer shall prevail.”
Background
The OFT estimated that, in 2006, the UK’s banks took £2.6 billion from their customers in
unauthorised overdraft charges. Which? believes that these charges are disproportionate in level
and opaque in nature. In 2006 a consumer backlash began that led to hundreds of thousands of
people reclaiming the money they had been charged. The huge number of cases put such a strain
on the Financial Ombudsman Service (FOS) and the county courts that in July 2007, the banks and
the OFT agreed to a test case in the High Court to determine whether the OFT has the power to
decide if the banks’ current terms and conditions (T&Cs) are unfair.
The OFT has power to assess the fairness of terms in consumer contracts subject to the limits laid
down in the UTCCRs, which implemented European Council Directive 93/13/EEC. Regulation 6(2)(b)
states that the assessment of the fairness of a term in a contract “shall not relate . . . to the
Page 2 of 2
adequacy of the price or remuneration, as against the goods or services supplied in exchange”. In
other words, the ‘value for money’ equation is excluded.
The Court of Appeal held that this exclusion applied only to the ‘core price terms’ of the contract
and not to ancillary terms such as the charges for unauthorised overdrafts. This would have allowed
the OFT to assess the banks’ T&Cs and decide what constitutes a fair charge for entering into an
unauthorised overdraft. It would also have paved the way for consumers to claim money back from
their banks. However the banks appealed the decision and the Supreme Court disagreed with the
Court of Appeal’s ruling, holding that the charges for unauthorised overdrafts fell within this
exclusion.
In the Supreme Court judgment, Lord Walker commented that ministers and Parliament had
decided to transpose the directive as it stood rather than to confer the higher degree of consumer
protection afforded by the national laws of some other member states and that Parliament might
wish to consider whether to revisit that decision. Lord Mance endorsed this comment.
What Which? wants
Which? would like to see the UTCCRs amended to ensure that overdraft charges can be assessed for
fairness going forward. This will help ensure a future where charges are clear, transparent and
proportionate.
The normal route to achieve this would be via BIS reissuing the UTCCRs. However we understand
this is unlikely at present as the European Union is looking at a new Consumer Rights Directive that
may, in due course, amend the UTCCRs. Which? is therefore concerned that no action will be taken
in the UK, but that there is no certainty that the Consumer Rights Directive will come into force
within the next five years and, even if it does, whether it would require an amendment to the
UTCCRs.
As a result we believe an amendment to the Financial Services Bill could, as an interim measure,
achieve the desire change. The proposed amendment would:
> 35.1) Changed Reg 6(2)(b) of the UTCCRs so that only terms relating to the main price are
excluded from an assessment for fairness.
> 36.2) Clarified that in the event of any doubt, the determination of what is classed as the
main price should be done from the point of view of the typical consumer, not the trader.
Proposed amendment to the Financial Services Bill
Which? is the business name of Consumers’ Association, registered in England and Wales No. 580128,
a registered charity No. 296072. Registered Office 2 Marylebone Road, London NW1 4DF.
BANK CHARGES
As a result of the Supreme Court’s decision on bank charges, Which? wants to see the Unfair Terms
in Consumer Contracts Regulations 1999 (UTCCRs) amended to bring them in line with how the
Regulations were interpreted by the Court of Appeal (rather than the Supreme Court) in the bank
charges case. This will allow the OFT to assess them for fairness going forward and ensure that the
charges consumers face are fair and transparent.
We would propose an amendment along the following lines:
After Clause 27 insert new clause 27B:
(1) The Unfair Terms in Consumer Contract Regulations 1999 (SI
1999/2083) is amended as follows.
(2) After regulation 6(1), insert -
“1A Paragraph 2 shall not apply to contracts for the supply of financial
services.”
(3) After regulation 6(2) insert -
“3 In so far as it is in plain and intelligible language, the assessment of
a term in a contract for financial services shall not relate
(a) to the definition of the main subject matter of the contract, or
(b) to the adequacy of the main price or remuneration, as against the goods
or services supplied in exchange.
4 Where a term of a contract provides for the charging of a consumer and the
circumstances in which that charge can be imposed need not arise during the
term of the contract, then such price or remuneration shall not fall within
the main price or remuneration for the purposes of paragraph 3.
5 If, for the purposes of paragraph 3 there is doubt about what represents
the main price or remuneration, the interpretation which is most favourable
to the consumer shall prevail.”
Background
The OFT estimated that, in 2006, the UK’s banks took £2.6 billion from their customers in
unauthorised overdraft charges. Which? believes that these charges are disproportionate in level
and opaque in nature. In 2006 a consumer backlash began that led to hundreds of thousands of
people reclaiming the money they had been charged. The huge number of cases put such a strain
on the Financial Ombudsman Service (FOS) and the county courts that in July 2007, the banks and
the OFT agreed to a test case in the High Court to determine whether the OFT has the power to
decide if the banks’ current terms and conditions (T&Cs) are unfair.
The OFT has power to assess the fairness of terms in consumer contracts subject to the limits laid
down in the UTCCRs, which implemented European Council Directive 93/13/EEC. Regulation 6(2)(b)
states that the assessment of the fairness of a term in a contract “shall not relate . . . to the
Page 2 of 2
adequacy of the price or remuneration, as against the goods or services supplied in exchange”. In
other words, the ‘value for money’ equation is excluded.
The Court of Appeal held that this exclusion applied only to the ‘core price terms’ of the contract
and not to ancillary terms such as the charges for unauthorised overdrafts. This would have allowed
the OFT to assess the banks’ T&Cs and decide what constitutes a fair charge for entering into an
unauthorised overdraft. It would also have paved the way for consumers to claim money back from
their banks. However the banks appealed the decision and the Supreme Court disagreed with the
Court of Appeal’s ruling, holding that the charges for unauthorised overdrafts fell within this
exclusion.
In the Supreme Court judgment, Lord Walker commented that ministers and Parliament had
decided to transpose the directive as it stood rather than to confer the higher degree of consumer
protection afforded by the national laws of some other member states and that Parliament might
wish to consider whether to revisit that decision. Lord Mance endorsed this comment.
What Which? wants
Which? would like to see the UTCCRs amended to ensure that overdraft charges can be assessed for
fairness going forward. This will help ensure a future where charges are clear, transparent and
proportionate.
The normal route to achieve this would be via BIS reissuing the UTCCRs. However we understand
this is unlikely at present as the European Union is looking at a new Consumer Rights Directive that
may, in due course, amend the UTCCRs. Which? is therefore concerned that no action will be taken
in the UK, but that there is no certainty that the Consumer Rights Directive will come into force
within the next five years and, even if it does, whether it would require an amendment to the
UTCCRs.
As a result we believe an amendment to the Financial Services Bill could, as an interim measure,
achieve the desire change. The proposed amendment would:
> 35.1) Changed Reg 6(2)(b) of the UTCCRs so that only terms relating to the main price are
excluded from an assessment for fairness.
> 36.2) Clarified that in the event of any doubt, the determination of what is classed as the
main price should be done from the point of view of the typical consumer, not the trader.
Comment