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Today’s decision in the OFT test case against the banks is long, and necessarily complicated. It will be some time before the extent and the implications of this judgment will be fully understood.
However, the essential contention by the OFT, namely that these bank charges are subject to the requirement of fairness under the 1999 Regulations, was accepted by the judge. This means that the OFT has the necessary jurisdiction and statutory powers to take action against the banks for the imposition of “unfair” penalty charges on consumer bank accounts.
It should be noted that the OFT conducted an extensive investigation into the “fairness” of the current bank charges, and widened that investigation to include all aspects of personal current accounts. That report was due out at the end of last year, but in light of the ongoing test case that report has not been published. The OFT have not yet given an indication as to when that report will be published. Nevertheless, it is safe to assume that the OFT have concluded that the current charging structure is unfair; the current proceedings would be entirely superfluous if the OFT had not reached that conclusion. The courts are not given to entertaining purely academic points.
I think it is very likely that the banks will appeal this ruling. Given the number of individuals affected, and the amounts of money involved (some sources speculate billions of pounds of charges may be at stake), the banks will be compelled to challenge this ruling. A hearing has been scheduled for the 22 May 2008 to determine how this case and any application to appeal are to be dealt with.
The real question however, is what will the OFT do next? They have a ruling in their favour that the charges are subject to the test for fairness, and they have an as-yet unpublished report that the charges are unfair. It follows that the OFT must discharge its duty (under EU Directive 93/13) to prevent the continued use of these unfair charges. Will the OFT and FSA discharge that duty now, by removing the current “waiver” for the banks, and preventing the banks from continuing to impose these unfair charges, or will the OFT await some final determination by the House of Lords a year or so from now?
For my part, I believe that the OFT should release this report at the earliest possible moment. To allow the banks to continue charging unfair charges is unconscionable. Consumers should be entitled to redress in the courts, and no more delays should be contemplated or allowed. The OFT should no longer be dancing to the tune of the banks.
Postscript:
Importantly, the 1999 Regulations only apply to consumers. Anyone who is operating a business account can only rely on the “penalty charges” argument, which states that such penalty charges are unenforceable at common law. However, the judge in this case ruled that the charges imposed on current accounts did not amount to “penalties”. This is because they are not brought about as a direct result of a breach of contract, but rather the provision of a loan (i.e. the unauthorised overdraft), even if that loan is a result of a breach of contract. I must confess I do not quite follow this line of argument, and you should read paragraphs 295-324 to gain a better understanding of the rationale for this part of the decision.
The effect of this decision is to render any claims by businesses, large or small, against the imposition of these charges, bound to fail on that basis. It may be that this consequence is an unintended consequence of the judge’s ruling; there was certainly no reference to business accounts that I could find in the judgment. It may be that the OFT will appeal this specific point, and it is hoped for the sake of many small businesses that they do appeal that point.
However, the essential contention by the OFT, namely that these bank charges are subject to the requirement of fairness under the 1999 Regulations, was accepted by the judge. This means that the OFT has the necessary jurisdiction and statutory powers to take action against the banks for the imposition of “unfair” penalty charges on consumer bank accounts.
It should be noted that the OFT conducted an extensive investigation into the “fairness” of the current bank charges, and widened that investigation to include all aspects of personal current accounts. That report was due out at the end of last year, but in light of the ongoing test case that report has not been published. The OFT have not yet given an indication as to when that report will be published. Nevertheless, it is safe to assume that the OFT have concluded that the current charging structure is unfair; the current proceedings would be entirely superfluous if the OFT had not reached that conclusion. The courts are not given to entertaining purely academic points.
I think it is very likely that the banks will appeal this ruling. Given the number of individuals affected, and the amounts of money involved (some sources speculate billions of pounds of charges may be at stake), the banks will be compelled to challenge this ruling. A hearing has been scheduled for the 22 May 2008 to determine how this case and any application to appeal are to be dealt with.
The real question however, is what will the OFT do next? They have a ruling in their favour that the charges are subject to the test for fairness, and they have an as-yet unpublished report that the charges are unfair. It follows that the OFT must discharge its duty (under EU Directive 93/13) to prevent the continued use of these unfair charges. Will the OFT and FSA discharge that duty now, by removing the current “waiver” for the banks, and preventing the banks from continuing to impose these unfair charges, or will the OFT await some final determination by the House of Lords a year or so from now?
For my part, I believe that the OFT should release this report at the earliest possible moment. To allow the banks to continue charging unfair charges is unconscionable. Consumers should be entitled to redress in the courts, and no more delays should be contemplated or allowed. The OFT should no longer be dancing to the tune of the banks.
Postscript:
Importantly, the 1999 Regulations only apply to consumers. Anyone who is operating a business account can only rely on the “penalty charges” argument, which states that such penalty charges are unenforceable at common law. However, the judge in this case ruled that the charges imposed on current accounts did not amount to “penalties”. This is because they are not brought about as a direct result of a breach of contract, but rather the provision of a loan (i.e. the unauthorised overdraft), even if that loan is a result of a breach of contract. I must confess I do not quite follow this line of argument, and you should read paragraphs 295-324 to gain a better understanding of the rationale for this part of the decision.
The effect of this decision is to render any claims by businesses, large or small, against the imposition of these charges, bound to fail on that basis. It may be that this consequence is an unintended consequence of the judge’s ruling; there was certainly no reference to business accounts that I could find in the judgment. It may be that the OFT will appeal this specific point, and it is hoped for the sake of many small businesses that they do appeal that point.
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