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Bank Charges - saying it with flowers
On Monday 28th January, an Interflora truck will roll up outside the plush and well-lit Canary Wharf offices of the Financial Services Authority. It will be delivering a substantial floral arrangement to the Managing Director of Retail Markets, Clive Briault.
The attached card reads as follows.
Dear Mr Briault
In loving memory.
We'd like to mark the six month anniversary of the sad loss of your moral conscience which slipped away on 27 July 2007 with just an unsteady waive.
From bank charge victims.
All of them.
Every single one of them.
Background
The 27th of January marks the six-month anniversary of the announcement of the current High Court test case between the Office of Fair Trading (OFT) and a number of high street banks.
The test case is the start of a process to examine the legality of penalty charges applied to bank current accounts. Rarely has a civil court case been so anticipated or so controversial and perhaps never before has a civil case so gripped the public interest, or promised to affect the lives of so many people. At stake is the future of the banks’ penalty charging structures as well as the refund of estimated billions of pounds to perhaps a million victims of these unlawful penalties.
Additionally, the financial services sector will be irrevocably changed by this test case. The banks have already indicated that if they lose the right to retain these charges and keep the income stream open, then they will recoup their profits through other charges, and most banks have already begun the process of stealth charges to replace the expected loss of the penalty charges option. This is supported by a media campaign to turn public opinion, by warning that the end of penalty charges will mean the end of ‘free banking’ for all. The banks' scare-mongering among the media, highlighting the end of free banking, hides the very nature of banking in the UK, that it is not free. The base rate currently stands at 5.75% yet the Big Four banks pay 0.1% on current accounts.
Contrary to popular opinion, bank charge victims are from ALL walks of life, including high-income earners who have, through no fault of their own, fallen on hard times and have also become victims of the penalty charges.
Also at stake is the integrity of the banks, which have operated for years as a cartel, so that the consumer has no option of a bank that does not levy disproportionate charges for minor breaches of contract. The self-styled ‘ethical bank’ (the Cooperative) operates the same system, as do the building societies that offer current accounts to their members.
Again, in a unified front, the organisations now claim that the charges are actually ‘fees for a service’, in an attempt to avoid regulation under the Unfair Terms of Consumer Contract Regulations. It is this point precisely that the test case will examine. Regrettably the current test case will not bring about a just solution, but merely address the semantics of the banks’ claims that their penalty charges are actually not penalties but legitimate fees for a service that is not normally provided.
For over two decades the banks have systematically plundered many customers’ accounts through unlawful charges, and often the victims are the poorest and most vulnerable members of society, whose lives have been seriously affected by this. In many cases, banks are unlawfully removing peoples’ benefit payments to profit from the penalties, as one small mistake can lead to a spiral of debt caused by charges upon charges, which are difficult to rectify when on a low income.
Over the last two years, a massive consumer backlash has seen tens of thousands of people reclaiming their charges, while the banks have repeatedly refused to attend court to defend them, choosing instead to settle out of court at the last moment, causing unnecessary work for consumers and clogging up the courts by filing template defences with no intention of actually defending the claims. The chief reason for this is that no bank has been prepared to enter a court, for fear of being forced to reveal the true cost of servicing a breach of contract, and hence the scale of the unlawful penalty added on to this.
The OFT acts
The Office of Fair Trading (OFT) has now taken action after a long period of inactivity and procrastination – firstly with an interim recommendation of a maximum £12 on credit card charges (April 2006), and now with a test case dealing with bank charges.
However, in 2007 an OFT spokesman bizarrely stated that in most cases he agreed with the banks view that the charges were in fact a ‘service charge’. The same spokesman has since declared publicly that he hoped the banks would come in with an offer of a level of charges that would be acceptable, but any such offer that exceeds the true cost of servicing a breach would be unenforceable in law, as well as being unacceptable to consumers whose money has been taken unlawfully.
This situation was hopefully rectified when the head of the OFT, John Fingleton, went on television to describe the charges as ‘tricks’ and rubbished the concept that banks currently offer ‘free banking’.
(News - Telegraph)
The claims-handling waiver
In July 2007, the banks made a secretive agreement with the regulators to run the current test case, whilst excluding appropriate consumer organisations from the consultation, thus adding to the injustice for the consumer. As a result of this key issues are not being addressed by the test case, such as the true level of costs. Also, many banks are routinely destroying records of accounts more than six years old (the normal claiming period), even though unlawful charges more than six years old are still legally reclaimable. These shortcomings all benefit the banks and penalise the consumer further.
The other regulator involved is the Financial Services Authority (FSA), which describes itself as ‘the regulator of all providers of financial services in the UK’, although it has maintained an eerie silence on the whole subject of bank penalty charges until recently. When the test case was agreed with the banks, the FSA granted a claims-handling waiver, which allowed them to stop processing claims for the refund of these charges until after the test case, so that victims no longer have any legal remedy for their recovery for the foreseeable future, while the banks have been allowed to continue levying the disputed charges.
The waiver was also misleading in the vague way that it was worded and promoted, leading to much confusion. Although the test case deals only with bank personal current accounts, the waiver has also been applied by most courts to accounts that are unconnected, such as business accounts, credit cards and mortgages. As a result, many consumers have had stays placed on their claims by courts, even though they have no connection to the test case. The FSA has only recently issued guidance on this, yet the courts still refuse to process many such claims and no action has been taken to correct this injustice.
Bend it like Briault
The man responsible for introducing the waiver is Clive Briault, Managing Director, Retail Markets, who will be the lucky recipient of the floral tribute, sent on behalf of all the victims of unlawful bank charges.
In an astonishing statement in July 2007, Mr Briault said:
"We have granted the waiver to help facilitate this test case. We believe it is not in the interests of all consumers for complaints to continue to be dealt with in the current inconsistent way. Once there is certainty on these charges, complaints can be dealt with fairly and consistently. To ensure consumer protection we have imposed a number of conditions on the waiver that firms must adhere to."
(FSA grants waiver to firms on complaints handling)
In fact, the waiver has no facilitative value to the test case (as the OFT have confirmed) and this claim is plainly misleading. The waiver does not benefit consumers and there was no significant inconsistency of result prior to the waiver.
Hardship cases are claimed as a key element of the waiver, as they should still be filtered out and considered by the banks, yet this has not happened and banks have fought to place stays on virtually all claims. Despite this, the FSA renewed the waiver in November by claiming that the safeguards were working effectively. When questioned on this, their reply revealed a clearly inadequate monitoring system and made the wild claims that during the first two months of the waiver, the banks identified 6908 cases of financial hardship and provided refunds to 1195 of these. No evidence has been provided to support these figures, which bear no relationship to reality within the reclaiming movement.
A toothless watchdog
Although the FSA is supposed to protect consumer interests and regulate the financial services sector, in practice it is not a government department and is actually financed by the banks, whose interests it clearly serves in a perfect business model that benefits both parties.
The actual ‘tripartite arrangement’ of FSA, Bank of England and Treasury was created by Gordon Brown, who proposed a 'light touch' to regulation, and set up the FSA when he was Chancellor, but the FSA is becoming increasingly discredited and consumer confidence in the organisation has effectively collapsed. The government can no longer ignore the plain facts of the crisis in the financial services sector, and the injustice suffered by consumers as a result of ineffective regulation and enforcement.
Kafka sums up the consumers’ perspective on the test case.
“The incompetence of the FSA has been cruelly exposed by the recent fiasco over Northern Rock, while the penalty charges issue demonstrates the shameless deceit of the FSA in its actions and public announcements. Few people realise that the FSA is not an independent regulator, but a company financed by the banks – the very firms that it is supposed to regulate to protect consumers. The country needs a regulator for the financial services sector that will protect the interests of the consumer, not the banks.”
”The government must take action to remove the waiver, stop the penalty charges, restore justice and rebuild consumer confidence in the discredited financial services sector. All of the money that has been taken unlawfully must be repaid. The current situation cannot be allowed to drag on for years, as some commentators predict - consumers have suffered enough at the hands of the banks while the regulators have looked on, and the government now has a duty to act".
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