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David Prosser's Outlook: How a legal limbo is frustrating both banks and their long-suffering customers
Thursday, 22 May 2008
That eight current account providers are to appeal the High Court's ruling against the fees charged to customers who bust their overdraft limits or bounce cheques will shock no one. What is more surprising is how little detailed law there is on the rights and wrongs of this case.
Last month's ruling was a curate's egg for both sets of protagonists – in the original sense of the phrase. Both sides could, with some justification, claim the judgment was good in parts for them, but the overall effect of the mixed ruling was to spoil its usefulness whether you are complaining about bank charges or defending them.
The good news for the banks was Justice Andrew Smith's decision that their unauthorised borrowing charges did not constitute a breach of contract, the basis on which a good number of customers have brought actions for compensation in the Small Claims Court. The benefit of this, however, was cancelled out by his insistence that the Office of Fair Trading was within its rights to decide whether the charges were fair, under the Unfair Terms in Consumer Contract Regulations legislation enacted in 1999.
It is this latter point that the banks will today appeal. That process is likely to take a couple of months, which will no doubt frustrate consumer groups. But the thornier matter for them is that Mr Justice Smith has so far been unable to offer guidance on how the OFT should come to a view about the issue of fairness, not least because the 1999 regulations offer so little help.
Put another way, even before the appeal to be announced today, customers are still only marginally closer to finding out whether or not they'll get compensation, let alone how much, than when the OFT first announced this test case last summer.
It may be little consolation to customers eager to get their hands on pay-outs worth hundreds or even thousands of pounds, but there is mounting frustration in the banking sector too over this saga.
Privately, many bank bosses wish this whole business had been quietly settled last summer, as it was in the case of credit card late payment charges, where the OFT simply said any fee over £12 would be considered unfair.
Unfortunately, the OFT, hindered by the vague terms of those darned Consumer Contract Regulations, felt unable to take the same approach on bank charges, where the volume and potential cost of claims is far larger. It would inevitably have faced legal attack from one side or the other.
Several banks feel the potential cost of losing this case makes it worth fighting for as long as it takes, despite the damage to their reputation. Accusations of foot-dragging will increase public hostility towards the sector and there's also the chance of embarrassing revelations as the banks are forced to disclose documents relevant to the case. But giving in would mean accepting a large hit on banking profitability at just about the worst time.
So, back to the courts it is then, on an ongoing voyage into uncharted legal waters. This newspaper has championed the cause of consumers who have, in our view, been repeatedly ripped off by charges of £30 or more following account breaches that can't possibly have cost banks more than a few pounds to deal with. We will continue to do so.
It is becoming increasingly obvious, however, that the legal framework set up to protect consumers from unfair terms falls a long way short of providing the clarity required, whichever side of a contract on which you sit.
Thursday, 22 May 2008
That eight current account providers are to appeal the High Court's ruling against the fees charged to customers who bust their overdraft limits or bounce cheques will shock no one. What is more surprising is how little detailed law there is on the rights and wrongs of this case.
Last month's ruling was a curate's egg for both sets of protagonists – in the original sense of the phrase. Both sides could, with some justification, claim the judgment was good in parts for them, but the overall effect of the mixed ruling was to spoil its usefulness whether you are complaining about bank charges or defending them.
The good news for the banks was Justice Andrew Smith's decision that their unauthorised borrowing charges did not constitute a breach of contract, the basis on which a good number of customers have brought actions for compensation in the Small Claims Court. The benefit of this, however, was cancelled out by his insistence that the Office of Fair Trading was within its rights to decide whether the charges were fair, under the Unfair Terms in Consumer Contract Regulations legislation enacted in 1999.
It is this latter point that the banks will today appeal. That process is likely to take a couple of months, which will no doubt frustrate consumer groups. But the thornier matter for them is that Mr Justice Smith has so far been unable to offer guidance on how the OFT should come to a view about the issue of fairness, not least because the 1999 regulations offer so little help.
Put another way, even before the appeal to be announced today, customers are still only marginally closer to finding out whether or not they'll get compensation, let alone how much, than when the OFT first announced this test case last summer.
It may be little consolation to customers eager to get their hands on pay-outs worth hundreds or even thousands of pounds, but there is mounting frustration in the banking sector too over this saga.
Privately, many bank bosses wish this whole business had been quietly settled last summer, as it was in the case of credit card late payment charges, where the OFT simply said any fee over £12 would be considered unfair.
Unfortunately, the OFT, hindered by the vague terms of those darned Consumer Contract Regulations, felt unable to take the same approach on bank charges, where the volume and potential cost of claims is far larger. It would inevitably have faced legal attack from one side or the other.
Several banks feel the potential cost of losing this case makes it worth fighting for as long as it takes, despite the damage to their reputation. Accusations of foot-dragging will increase public hostility towards the sector and there's also the chance of embarrassing revelations as the banks are forced to disclose documents relevant to the case. But giving in would mean accepting a large hit on banking profitability at just about the worst time.
So, back to the courts it is then, on an ongoing voyage into uncharted legal waters. This newspaper has championed the cause of consumers who have, in our view, been repeatedly ripped off by charges of £30 or more following account breaches that can't possibly have cost banks more than a few pounds to deal with. We will continue to do so.
It is becoming increasingly obvious, however, that the legal framework set up to protect consumers from unfair terms falls a long way short of providing the clarity required, whichever side of a contract on which you sit.
