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Re: OFT Update Q&As
Questions and answers for OFT personal current account work
The market study and UTCCRs investigation announcement was made on 29 March 2007 and the test case announcement was made on 26 July 2007.
Updated 28 April 2008
Overview
[Quick link to overview]
1. What work is the OFT doing relating to personal current accounts?
Test case
[Quick link to test case]
2. Where does the test case fit in?
3. What does the judgment say?
4. Does the test case have any read across to credit card default charges?
5. How does the test case affect consumers in Northern Ireland and Scotland?
6. Which banks took part in the test case?
7. Will OFT be publishing all the court documents on its website?
8. What happens now?
9. Does reference to voluntary cooperation mean that the OFT may simply do a deal with the banks behind closed doors?
Outcomes
[Quick link to outcomes]
10. I don't incur charges, what is OFT doing to protect consumers like me?
OFT, Financial Services Authority and the Financial Ombudsman Service
[Quick link to OFT, FSA, FOS]
11. What are the roles of the OFT, Financial Services Authority and Financial Ombudsman Service in all of this?
Consumer complaints
[Quick link to Consumer complaints]
12. What happens to those wanting to reclaim, or in the process of reclaiming charges?
13. Why can the banks continue to levy charges?
Overview
1. What work is the OFT doing relating to personal current accounts? [Back to top]
There is widespread concern about whether current accounts provide value for the UK consumer, and in particular whether unarranged overdrafts are fair.
The best way to get a good outcome for consumers is to make sure that consumers understand what they are paying and if necessary, can move to banks that offer better value for money.
To achieve this outcome we launched a personal current account market study in April 2007 to consider the wider questions about competition and value for money in the provision of personal current accounts, such as:- transparency of costs to consumers, and
- ease of switching.
We also launched an investigation into the fairness of personal current account unarranged overdraft charges (the relevant charges) under the Unfair Terms in Consumer Contracts Regulations 1999 (UTCCRs).
Test case
2. Where does the test case fit in? [Back to top]
In July 2007, the OFT entered into a written agreement with seven banks, one building society and the Financial Services Authority (FSA) aimed at ensuring that the inevitably complex issue of the legality of the relevant charges is resolved in an orderly and well coordinated way and as speedily as possible. By bringing this action on behalf of consumers we will gain the legal clarity necessary to achieve the fair and consistent handling of consumer complaints.
The test case process is divided into two stages.- Stage one of the test case process was announced in July 2007 and is called the "preliminary issues process". It is considering the legal principles of whether the test of fairness under regulation 5 of the UTCCRs applies to such charges at all; and whether the common law on penalties applies. The High Court hearing to determine the preliminary issues began on 17 January and ended on 8 February 2008. Judgment was handed down on 24 April 2008. There may need to be further hearings to determine any outstanding issues arising from the judgment.
- Stage two of the test case process will deal with whether the relevant charges are actually unfair. We are addressing this question through our ongoing investigation and will consider our position in light of our findings and full consideration of the outcome on preliminary issues.
The Judge found that unarranged overdraft charges in personal current accounts can be assessed for fairness under the UTCCRs. The Judge rejected the banks' contentions that the relevant charges are exempt from an assessment as to fairness under Regulation 6(2) of the UTCCRs.
The Judge also found that in respect of terms now generally used by the banks for personal current accounts (other than basic accounts), those of HSBC, Lloyds, Nationwide and RBSG are in plain and intelligible language and those of Abbey, Barclays, Clydesdale and HBOS are largely in plain intelligible language but not so in certain specific and relatively minor respects. The Judge also found that the relevant charges are not capable of amounting to penalties at common law.
It is important to note that this Judgment only covers points of legal principle and does not determine whether the relevant charges are actually unfair. The OFT has not yet reached any conclusions about the fairness of the charges.
4. Does the test case have any read across to credit card default charges? [Back to top]
The present case concerns only banks' personal current account charges for four types of unarranged overdraft charges: unpaid item fees, guaranteed paid item fees, paid item fees, and overdraft excess charges.
5. How does the test case affect consumers in Northern Ireland and Scotland? [Back to top]
The UTCCRs apply across the UK and the outcome of the test case will be important for consumers right across the UK.
6. Which banks took part in the test case? [Back to top]
The following are parties who agreed with OFT to take part in the test case:- Abbey National plc
- Barclays Bank plc
- Clydesdale Bank plc
- HBOS plc
- HSBC Bank plc
- Lloyds TSB Bank plc
- Nationwide Building Society
- Royal Bank of Scotland Group plc.
7. Will the OFT be publishing all the court documents on its website? [Back to top]
Wherever we can, we will seek to publish the court documents. Accordingly, we have published our Particulars of Claim (and schedules A and B), the banks' defenses and our reply on the website.
Broadly speaking, the Civil Procedure Rules (CPRs) say that some documents - like particulars of claims - should be freely available publicly. They would usually be freely available from the court, but we will seek to make them available on our website. The CPRs also say that the availability of other documents - such as the witness evidence and the skeleton arguments - is more restricted, and they are only available on specific application to the court.
To obtain a quote for copies of transcripts of the January/ February court hearing, please contact the Case Management Department at Merrill Legal Solutions on (020) 7421 4010. Copies of the Judgment are available from the Judiciary of England and Wales website. A copy can also be found here (pdf 652 kb).
8. What happens now? [Back to top]
This is an important early milestone for the OFT and our investigation into this area is of high consumer interest. We are now analysing the implications for the judgment for our overall investigation into the fairness of the terms. There may need to be further hearings to determine any outstanding issues arising from the judgment. The timetable for next steps will be decided by the court at a hearing before the end of May.
For information relating to reclaiming charges, see Q12.
9. Does reference to voluntary cooperation mean that the OFT may simply do a deal with the banks behind closed doors? [Back to top]
No. We want to see fair treatment of consumers and are determined to secure successful resolution on these charges for the benefit of consumers. Our position is simply that, if we can resolve any concerns we have about the fairness of the relevant charges without the need for further, lengthy, court action, then this would be in the best interest of consumers. For example, if the banks gave satisfactory undertakings about their conduct. This is no different to the approach we would take in any UTCCRs case. In any event, we are required by the Enterprise Act 2002, to consult with the banks to try to put a stop to any unlawful charges before starting any enforcement proceedings.
Outcomes
10. I don't incur charges, what is OFT doing to protect consumers like me? [Back to top]
The purpose of our investigation is to consider whether the relevant charges are compliant with the relevant consumer legislation (the UTCCRs), designed to protect consumers against unfair standard terms in contracts they make with businesses. To reach a view on this we are looking at things like how much banks charge, and how they charge. However we are not saying that banks can't charge people who mismanage their account at all.
The initial scoping work we did highlighted that the question of whether the relevant charges are legal needs to be considered in the context of the market, and consumers, as a whole. We therefore launched a personal current accounts market study at the same time as the UTCCRs investigation to focus on price transparency, ease of switching, fairness of the pricing structure across the full range of services offered by banks, and the potential consequences of any enforcement action in relation to unarranged overdraft charges for all consumers. It will include data from an extensive survey of consumers in all financial situations, and an analysis of how much it costs them to run their account, based on data provided to the OFT by the banks. We will be reporting on our findings in a few months having taken account of the implications of the test case judgment.
What we want to achieve, is a situation where bank customers are armed with the knowledge and skills to make rational and informed decisions about their banking, and where they feel able to vote with their feet and switch banks if necessary, to get the best deal.
OFT, Financial Services Authority and Financial Ombudsman Service
11. What are the roles of the OFT, Financial Services Authority and Financial Ombudsman Service in all of this? [Back to top]
The OFT's role is to make markets work well for consumers. Its responsibilities include enforcement of the UTCCRs, where appropriate. However the OFT does not have the power to intervene in individual disputes between consumers and businesses.
The Financial Services Authority (FSA) regulates the financial services industry and in particular deals with how Banks handle complaints. Like the OFT, it does not handle individual complaints but it does have an interest in ensuring that complaints about past actions are satisfactorily dealt with. The FSA is a Qualifying Body under the UTCCRs, meaning it too has the power to enforce them, where appropriate.
The Financial Ombudsman Service (FOS) has responsibility for dealing with individual complaints by customers.
While all three organisations hold different roles, we have been working together to ensure that this process is well coordinated.
Consumer complaints
12. What happens to those wanting to reclaim, or in the process of reclaiming charges? [Back to top]
If consumers believe they have been wrongly or unfairly charged by their bank, they should raise the issue with their bank in the first instance.
The normal complaint channels have been affected by the test case process as follows:- To facilitate the test case, in July 2007, the FSA granted a number of banks a waiver. This means that firms who were granted the waiver do not have to deal with complaints about unarranged overdraft charges for one year, or until the test case process is resolved. The waiver does not interfere with firms' obligations under the Banking Code, which sets out how firms should deal with cases of financial difficulty. The FSA will continue to assess whether the waiver remains necessary and appropriate in light of the prevailing circumstances. For further information, please see the FSA's website.
- For the time being, the FOS has decided not to progress complaints or deal with new ones, other than in hardship cases.
- The courts may also 'stay' (put on hold) claims made to them. Whether and when those stays are lifted is for the courts to decide. For further information, see Her Majesty's Courts Service website.
As we have not yet completed our investigation into the fairness of the relevant charges, it would not be appropriate for us to ask banks to make changes to their charging structure at present. But this will not prevent you asking for repayment of any future charges if they are found to be unlawful.
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