Tweet
Thanks to everyone across the site for their input into this especially EXC, Budgie, Centium and Tools. Its gone off to the OFT today following our meeting with them on Wednesday - it is only a first view on things - please excuse grammatical and spelling errors or rubbish wording (and a random repeat of the same point on the ECJ) - we only had 24 hours really to produce it and we're not lawyers by any stretch of the imagination. Its an amalgamation of everything we've been discussing across the forums over the past few weeks.
Download the full report - Legal Beagles PDF
From the conclusion of the report
CONSEQUENCES OF THE OFT's DECISION
We actually found this quite a complicated area to cover particularly because Consumers have been so massively affected in all areas by previous charging structures and levels.
If the OFT do not continue:
In the event the OFT decide not to continue with the UTCCR investigation, we consider some the likely consequences to be as follows:-
A widespread reduction in Consumer confidence in the OFT and other Government bodies.
Concerns related to the wasted costs in terms of money and resources involved in the UTCCR investigation to date.
Concerns that the banks will raise PCA charges (which can be countered by other work undertaken in the market - the OFT will need to reassure consumers that prices and charging structures of PCAs have become and will continue to be more competitive, transparent and fairer and that regulation in the market will be strengthened and monitoring continued).
There would be no redress on historical charges - Consumers feel that the changes in the system over the past three years are evidence that the previous levels and structures were unfair and unreasonably high and the structures in place unfair and opaque. The charges have had massive effects on individuals overall life - finances, relationships, businesses, homes, health, the list is endless. The lack of fairness or compassion shown by the banks to individuals prior to and during the investigation has massively
impacted Consumer confidence in the banks and the regulators and they want recompense for the failings.
A number of Consumers with stayed County Court claims would most likely wish to continue their claims on an individual basis. Whether they actually did so would depend upon their confidence in their own ability to litigate in person. This would of course disadvantage less able or less confident Consumers and would cause renewed chaos in the County Court system. Most Consumers pursuing their own claims in this manner would expect or hope that the Banks would settle in advance of a formal Court hearing. However, because of the complexities of the legal arguments involved these matters would quite quickly have to be taken to the High Court rather than the County Court and no individual Consumer is likely to be able to pursue this course of action owing to both cost and complexity. Such an action would have to be pursued via some form of Representative action and it is unlikely that such a Representative action could or would be entertained if there was no participation in the form of an ongoing investigation by the OFT.
Seasoned Campaign Groups may also be concerned about 'letting Consumers down' and may push their visitors and members into court on the same and further developed arguments the OFT have declined to continue with. This also creates the risk of pushing Consumers further into debt whilst they try to keep overdraft debts in dispute whilst these cases progress.
Consumer groups would also be forced to seek or pursue solutions to the Bank charges scenario via political and or parliamentary routes. The Government will be asked to intervene and look again at legislation and independent regulation of the banks
Consumers who have had overdrafts/debt on hold whilst the investigation was ongoing are concerned about the speed and ferocity with which the banks will demand repayment of this money. Overdrafts, even whilst in dispute, have been subject to charges upon charges upon charges increasing the debt over the past three years. Banks have also taken legal action against Consumers who disputed overdraft debt as being made up of charges to enforce repayment - these claims in many cases have also been put on hold by the courts pending the resolution of the test case. Some of these will be for thousands of pounds, and made up almost entirely of bank charges. Debt Collection Guidelines (OFT 664) and regulation MUST be highlighted and adhered to by the banks. We would like to see some form of leniency/breathing space for these Consumers and the banks to accept repayment plans evidenced as affordable before pushing for charging/sale orders
Banks asking for ''wasted costs'' etc on claims in the system prior to Nov 25th.
Amnesty of interest and charges incurred on abandoned overdrafts pending test case (goodwill / PR for banks).
Future of Credit Card claims - will the OFT proceed to obtain legal clarity on those issues.
Conspiracy Theories abound
Will there be a competition investigation
Continuance of PCA Market Study and release and implementation of findings with regards to charges. The OFT have already found the charges unfair (ref August 2008 letters) How will they
take that forward without litigation?
Other subjects which will be raised; much of this will be expanded on in our PCA report update.
The Governments inclusion scheme pushing people into banking - exposing people to charges.
Benefits - claimants being 'encouraged' into opening bank accounts rather than using POCA
Strengthened Regulation of processing of hardship complaints - refer Lending Code Section 9.
Banks encouraged to accept repayment plans from consumers on Overdrafts BEFORE there is a problem
Refunds for periods of hardship - clarification if this can continue under BCOBS and Lending Code (historically under Banking code)
Refunds on charges and interest added on overdrafts where they have been added whilst the charges and thus the debt had been in dispute.
If the OFT continue:
Consumer Groups are mainly concerned with the issues of power and control afforded to the Banks by these contracts and would continue to have confidence and are relying upon the OFT to fulfil its obligations.
The majority of Consumers are already disappointed by the OFT and the UK legal system and the apparent failure to provide legal clarity for these issues. The possibility exists for the OFT to repair this disappointment and stamp it‘s authority as the UK‘s official Regulator and enforcer.
Many Consumers are frustrated at the amount of time taken to date with the original test case and would of course be disappointed if a further lengthy court battle were to be embarked upon. However, most Consumers would rather have eventual certainty and clarity rather than no clear legal solution at all.
The OFT are unlikely to ever have a more important case to administer. Virtually every UK Consumer is affected, the value, not just in monetary terms, is enormous and the potential benefits for Consumer contract regulation are extremely tangible.
The OFT would be continuing its investigation under the UTCCR‘s, plus pursuing change in the market via its PCA report and or via the competition route. Plus, if it were to also consider the possibility of joining or being joined in litigation by a Consumer Representative Action aimed at resolving historic plus non UTCCR issues together with legal redress, limitation and compensation then the OFT would not have wasted two years of cost, experience and acquired knowledge of the intimate workings of the Banks' charging systems. It is extremely unlikely however that Representative action could be undertaken if the OFT were not to continue its investigation.
Most Consumers would be 100% behind the OFT continuing its investigation, even if the Banks continued on their so called charges reduction program and charges were reduced to say only 2p. The present status of the contract and the lack of Consumer control in the contract is unacceptable and disproportionately in favour of the Banks. Every Consumer is at risk from the future excesses of effectively unregulated PCA contracts.
Should the OFT decide to continue then the status of stayed claims in court, overdrafts in dispute and the terms of any new waiver need to be made clear immediately.
CONCLUSION
We urge the OFT to continue the investigation to achieve legal clarity and certainty and thank you for enabling our views to be heard on behalf of Legalbeagles.info
Its much easier to read the PDF version which you can download below
LEGAL BEAGLES REPORT TO THE OFFICE OF FAIR TRADING DECEMBER 2009
Legal Beagles are a free-to-join internet forum offering help, support and advice to the general public who have issues involving Consumer rights. Legal Beagles was formed and went live in May 2007. We have a rapidly increasing membership and currently have just over 6600 registered users of which almost 50% are active during any month, plus a daily viewing of over 2000 non registered guests. High proportions of our registered users are currently reclaiming or have previously reclaimed bank overdraft, PPI or credit card fees, or are suffering with financial hardship and general debt issues. We work closely with many other similar forums, sharing information and discussing issues. Consumers are often directed between Consumer sites to where there may be more specialist advice suitable to their needs. As we are accessible 24 hours a day every day of the year, we can provide real time help for people that need one-on -one support and advice over the many consumer issues that arise from day to day. Through helping Consumers with difficulties in the main attributed to the financial services industry, a strong community spirit has formed and is very much a feature of our site. We are funded by donations from private individuals.
INTRODUCTION
The personal current account (PCA) may well be a cornerstone of Britain‘s retail financial system, but for the vast majority of adults it means far more than that: it is a central and essential component of 21st century life. PCAs are the gateway into the economy for much of Britain‘s household consumption. PCAs allow for the regular payment of rent or a mortgage, utility bills, food, clothing, and a myriad of other essentials that are integral to modern life. The PCA represents the economic infrastructure by which our work, wages and savings are recycled into the economy. In this respect, we believe that the PCA is an essential utility and not merely a service. This is further evidenced by the government's financial inclusion scheme. Whilst Banks continue to operate PCAs on a purely commercial and highly profitable basis, it represents a failure by the Banks, the Government and the Regulators to fully appreciate the nature of the PCA as an essential component of our national economic infrastructure. Given the historic failures within the banking system to address concerns over competition and consumer protection, it is apparent that purely commercial interests cannot be left to dictate the future direction of the PCA. If we were to rewrite the banks' current position on overdraft assessment it might read thus; "We have the right to provide a service we feel may be of use to you, even if it is not strictly necessary, and you have the obligation to pay us whatever fee we determine for these services. You have no right to decline these services." Even if the service was currently free, that would be enough to send a shiver down anyone's spine.
SHOULD THE OFT CONTINUE IT'S UTCCR1999 INVESTIGATION
The test case was only ever a part of the OFT's UTCCR1999 investigation and clearly the Supreme Court judgment only ruled on one single aspect of the regulations (the ‗price‘) without exploring the rest. The fact that the Supreme Court offered the OFT another route under regulation 5 is significant. After all, how many last instance judgments offer the losing party an alternative? If the OFT don‘t take it up, Consumers will feel terribly let down by the OFT, the Regulators that were designed to protect them, and the process itself. In the meantime we need the PCA Market Study findings on charging levels and structures announced and implemented. Consumers cannot or should not be expected to suffer a further three years of a one sided waiver with which the banks are irrevocably protected by when it suits them yet they continue to ignore the OFT‘s and Regulators' guidance on disputed accounts, continue applying charges to those in genuine hardship, and continue to pass accounts to debt collection agencies and pursuing court action against individuals. The test case was initiated to provide ‗legal clarity and certainty‗. In short, it hasn‘t. And as such provides the very reason why the investigation should continue.
HOW THE RELEVANT CHARGES STAND IN LAW
Over 12 million bank customers pay the Relevant Charges each year, averaging £240 per customer per year, and around 1 million are presently contesting these as unfair via the banks complaints systems and around 65,000 through the County Courts. As a result of the recent Supreme Court judgment we know the following about the Relevant Charges:
i. they apparently do not exist purely to deter the Consumer behaviour that generates them and they are not capable of being penalties under a contractual construction. The Banks rely on them to cross-subsidise the free-if-in-credit model.
ii. They are a charge for services rather than default (breach of contract).
iii. They are not ancillary to the price of a current account; they are a core part of it in exchange for the overall package of services.
iv. They are described in Plain Intelligible Language (PIL). v. As service charges they are exempt from assessment for fairness under the UTCCR 1999 Reg. 6(2). vi. Other areas of the UTCCR might allow assessment of fairness, not on the basis of price, but must be within the context of the overall contract.
vii. The judgment was on a narrow legal issue and doesn't mean other laws /regulations can't be applied. On first reading, the judgment may appear to have severely hindered the attempts to assess the Relevant Charges for fairness. However, as a result of the judgment there may be new approaches to the matter. ALTERNATIVE AND NEW APPROACHES Below are six areas of law under which the Relevant Charges might still be considered unfair, unlawful and open to investigation. This is by no means an exhaustive list, but these appear promising as they are consistent with and in some cases complementary to one another.
1. UTCCR Reg. 5(1) – An imbalance of rights and obligations, contrary to good faith, and to the detriment of the consumer.
2. The Misrepresentation Act 1967 or common law Mistake
3. The Competition Act 1998, Chapter II
4. Undue influence (common law)
5. CCA 1974 (as amended), s140A & 140B – unfair relationship
6. Common law penalty
1) UNFAIRNESS PER UTCCR 1999 REGULATION 5 (1)
Regulation 5 (1) states: 5. - (1) A contractual term which has not been individually negotiated shall be regarded as unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties' rights and obligations arising under the contract, to the detriment of the consumer.
The Arguments:
a) We believe that the Relevant Terms are contrary to the requirements of good faith, as they cause a significant imbalance in the parties' rights and obligations arising under the contract, to the detriment of the Consumer. We are of the opinion that, by analogy to paragraph (e)of Schedule 2 to the 1999 Regulations: Indicative and Non-Exhaustive List of terms which may be regarded as unfair, that the Terms which are unfair include those that are ―Requiring any consumer who fails to fulfil his obligation to pay a disproportionately high sum in compensation‖ Notwithstanding the belief that the UTCCR1999 regulations were not specifically intended to cover financial services such as PCA's it is unthinkable that the original intention of regulation 6.2 would be to totally preclude an assessment of fairness as to price under Regulation 5 (1) using some of the price based reasons for unfairness as referenced in the ‗grey terms‘ Schedule 2 including paragraph (e).
We believe that regulation 6.2 must have originally been intended as a standalone clause in respect of a limited number of potential issues and not an all encompassing ‗get out of jail‘ free type clause. We believe that there is an incredibly strong case here for referral to the European Court as an integral part of a new legal action. Clarification on this matter together with other uncertain areas such as burden of proof‘ and cycle of debt caused by application of contingent fees' are areas where clarification by the European Court could be sought. We are presently still formulating our full argument in respect of this particular issue and will provide further information shortly.
b) The other reasons would include (for example) arguments related to Schedule 2 paragraph e ―Requiring any Consumer who fails to fulfil his obligation to pay a disproportionately high sum in compensation.‖
c) We consider that the Banks can choose which service they offer without consideration for or confirmation of what the Consumer intended. For example Banks could consider a request for overdraft and pay or simply reject payment on grounds of lack of funds. In performing these services the Banks act as agent for the Consumer and therefore should have had regard to the Consumer‘s intent. The Consumer‘s intent may be for the request to be facilitated if there are sufficient funds, to be rejected if there are not or to be asked for confirmation (where practicable) otherwise. However the contract denies the Consumer the opportunity to express that or any specific intent other than that determined by the Banks.
d) We consider that a request to pay is not necessarily a request for overdraft except by virtue of the non-negotiated contract terms. The overdraft assessment is not optional, additionally there was no opt out possibility at commencement of the contract and therefore it acts contrary to good faith and is therefore unfair.
e) We suggest that if an 'overdraft extension request' was declined, there is no reason why the Bank's answer for any subsequent requests should be any different if the account balance has not changed other than by virtue of the Relevant Charges being applied? The Consumer could therefore not intend subsequent payments to be requests for assessment, and it would be to their detriment for them to be regarded as such. If the fee was argued to be for checking the Consumer's account, the Banks would actually be providing the same service as they otherwise provide for free and therefore no further consideration should be required unless the circumstances are materially different.
f) It is beyond dispute that the relevant terms were not available to Consumers in advance, or have been included in the relevant contracts since conclusion. Either way Consumers have become irrevocably bound to terms with which they had no real opportunity of becoming acquainted before the conclusion of the contract or were unable to negotiate if they were included after conclusion.
g) It is apparent that the individual Consumer is required to subsidise the running and/or operation costs of accounts other than that of the individual Consumer. In so doing so the Bank‘s charging structure reverses the usual pattern of cross subsidisation by delivering heavily subsidised banking services to those with the most financial competence or resources at the expense of those with the least.
h) We contend that the Banks have control over the distribution of the Consumer‘s salary or benefits, and the relevant terms allow for the automatic application of the relevant Charges, with little or no notice to the Consumer.
i) In our experience the Banks, by virtue of the relevant contracts, have priority over the Consumer‘s other debtors with regards to the application and payment of the relevant Charges to the Account. There is no consideration in advance of applying the charge as to whether or not the bank applies the charge.
j) Additionally, the The Banks' contracts include a right of offset by which they are able to offset an unauthorised overdraft from a Consumer's savings or other account. An imbalance exists in the contract as there is no equivalent equitable arrangement in favour of the Consumer. There is no contractual means by which additional funds, required to enable payment of a transaction and which would otherwise trigger relevant charges, could automatically be transferred from a Consumer's savings account to the relevant personal current account by the Bank. k) In our experience the relevant terms have frequently forced individual Consumers into a cycle of debt, where the Relevant Charges directly or indirectly give rise to the application of additional charges to the account, without any restriction or limitation.
2) MISREPRESENTATION
It may be possible to bring arguments under the Misrepresentation Act 1967 or, at common law, as a unilateral mistake from which the banks knowingly benefited. Historically either;
The banks misrepresented that their relevant terms were penal as opposed to contracting to provide services, or
The banks were aware of their Customer‘s 'mistaken belief' that their relevant terms were penal but failed to correct this, to the detriment of the Consumer but to the benefit of the Banks, or
The banks were aware that the relevant terms were penal in nature but realised they could argue they were in exchange for a package of services and misrepresented to the court accordingly.
In any case, Consumers would aver that they had been acting on a misrepresented but reasonable assumption that the relevant terms were related to costs rather than service charges and would contend that the charges should not have been part of the consideration in exchange for any so called contracted 'package' of services. Should it matter if the relevant charges are for a service disguised as a penalty or for a cross subsidy disguised as a service? At the end of the day it is £2 disguised as £38 and simply a deceitful description.
3) COMPETITION Consumers suffered loss due to the anti-competitive behaviour of the Banks. The Competition Act 1998, Chapter II 18 Abuse of dominant position
(1) Subject to section 19, any conduct on the part of one or more undertakings which amounts to the abuse of a dominant position in a market is prohibited if it may affect trade within the United Kingdom.
(2) Conduct may, in particular, constitute such an abuse if it consists in— (a) directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions;
The argument: • Chapter 2 is usually difficult to apply to oligopolies as it is hard to demonstrate the collective dominant position. However, the banks have publicly admitted to the collective dominant position via the British Banking Association (BBA) and individually all UK banks are members of the BBA – this covers 100% of personal current account providers.
• The stated position is that free-if-in-credit is the banks' preferred model and there is general agreement to keep to this model. This model relies on cross-subsidy via the Relevant Charges.
• The free-if-in-credit model is effectively price discrimination on the basis of property, i.e. the less money a customer has, the higher the overall cost of the package account.
• This is evidenced by the OFT PCA study data showing customers with less than £1000 in savings are much more likely to incur charges.
• Also, from the Supreme Court judgment, bank revenue from these charges accounts for 30% of revenue from only 20% of the customer base
. • Banks, via the Relevant Terms, because the overall price of an account to be higher than in a competitive market for the people that incur them. This is evidenced by the OFT PCA study data showing a steep upward trend in Relevant Charge levels over the years.
• Therefore the banks may be in breach of Chapter 2 by imposing unfair selling prices upon and engaging in price discrimination against their most vulnerable customers.
We have long suspected that the banks collude to artificially maintain the price of insufficient funds charges. During a House of Commons Scottish Affairs select committee oral evidence session - 'Banking in Scotland' - in March this year, Group Chief Executive, Scotland, for Lloyds Banking Group, in answer to question 366, told the committee that ''The banking industry has generally come to an agreement that they will charge certain amounts for overdraft letters.'' Uncorrected Evidence 319 4)
UNDUE INFLUENCE
a) It has long been recognised that the relationship between banker and customer is that of debtor-creditor (Foley v Hill 1848)
b) It is also recognised that when the banker transacts on the customer's instruction he does so as agent (Westminster Bank Ltd v Hilton 1923)
c) These transactionary functions were originally described as 'superadded', or extra to the main bargain, 'by custom' (Foley v Hill 1848)
d) The Supreme Court has ruled that current accounts are contracted as a package of services and that is the main bargain - these services are not ancillary or extra (OFT v Abbey National 2009)
e) These services are provided not against the customer's money, as it is now the bank's, but against the resulting chose in action constituted by the account.
f) It follows that in the context of modern current accounts the main relationship is no longer banker-customer rather service provider-customer; the majority of transactions are no longer deposits and debits between banker and client, rather credits and debits between the customer and third parties via the bank.
g) Under common law Undue Influence lends support to this characterisation, not by automatically presuming an agent-principal relationship, but deriving the characteristics of such a relationship in the particular case (National Westminster Bank plc v Morgan 1985)
h) The exact nature of a relationship is determined by contract but also by the level of trust, confidence, reliance, dependence and vulnerability of the customer. (Royal Bank of Scotland v Etridge 2001)
i) Where the customer pays their wages / benefits into the hands of the bank it is submitted that to do so requires a high degree of trust and confidence in the way the bank will transact against the resulting account.
j) Where most of the customer's outgoings are through the account it is submitted there is reliance and even a dependence upon the bank.
k) Where the customer has no great savings in the event of misfortune, it is submitted that the customer is vulnerable.
l) When all the above is true and where the customer is already indebted to the bank it is submitted that the customer is yet more vulnerable.
m) It is not unusual for points (i) through (l) to be true in an individual case.
n) Given that the customer allows the bank to make use of their money as if the banks own, or pays interest to the bank for their debts, it is submitted that it would be inequitable to allow the bank to take advantage of the customer's circumstances.
o) It is submitted that any transactions entered into that are manifestly against the customer's interest are done so under undue influence.
p) This undue influence arises either as an abuse of the agent-principal relationship when transacting against the account or alternatively, due to abuse of the circumstances described at points (i) through (l) above, amounting to the same. Also:
q) The customer may be vulnerable in addition to the above because they lack understanding of the complex charge structure (item fee / daily fee / monthly fee) and how this will operate upon their account.
r) Furthermore, daily maintenance fees are unnecessary to both the customer and the bank. When the overdraft assessment is initially performed the bank should be able to determine how long they are willing to loan the money for so a daily assessment is redundant. The customer understands that the overdraft is repayable on demand and is already paying interest at the 'unauthorised' overdraft rate. This is an artificial device to inflate the interest rate beyond what would normally be considered an acceptable level, again made possible by the undue influence of the bank.
s) As noted above, when Relevant Transactions are manifestly not in the customer's interest they are only entered into because of the bank's undue influence. t) It is strange that companies providing such a fundamental service to our society cannot be assumed to be trustworthy? It's hard to imagine
that caveat emptor should be applied to stock brokers, personal assistants or the Post Office for example - we should be able to trust these agents implicitly. u) The fundamental service isn't using our money for their own ends; it's in acting as our financial intermediary.
5) CCA 1974 (as amended), UNFAIR RELATIONSHIP
a) We consider there was an unfair relationship in favour of the Banks per s140A & s140B of the CCA 1974 (as amended) due to the behaviour and conditions described above.
b) Alternatively, or in addition, this unfair relationship existed because the relevant terms operated on the Consumer's account to create an unfavourable financial position, thereby limiting the Consumer‘s ability to switch accounts, or to negotiate.
c) Additionally, the Banks further compounded the unfavourable financial situation of the Consumer by increasing the Relevant Charges over a number of years (contrary to and or in excess of what a competitive market would normally expect or allow).
6) THE COMMON LAW PENALTY ARGUMENT REVISITED a) Prior to the Test Case most Consumers believed the relevant terms to be unenforceable common law penalties. b) Justice Smith's High Court judgment stated that the relevant terms were incapable of being common law penalties, because it was not possible, using a contractual construction of the standard terms, to link the relevant terms directly with a breach of contract. c) However, Justice Smith only reviewed certain terms from certain periods from each of the Banks. Not taken into consideration were the Bank‘s charge notification letters. These letters clearly form part of the overall PCA contract just as the leaflets detailing the various amounts of the charges are an integral part of the contract. d) We are currently compiling a database of such letters for each of the Banks. Our initial findings convince us that these letters clearly link a breach of contract, on the Consumer's part, with the resultant charging term and amount. The charges were in respect of failure to have sufficient funds in the account to meet transaction instructions and were levied by
the bank to cover the increased costs to which they were put as a result of the breach. These matters are linked in the letter whereas they are not linked in the generic terms and conditions. This further adds to the argument for misrepresentation. There is a wealth of documentary and anecdotal evidence than that shown below to prove this is the case. Example of typical wording on charge notification letters Halifax PLC " We haven't been able to pay the item (s) shown below because there wasn't enough money in your account. To cover our costs, we make a charge of £39 (maximum 3 charges per day) for any item we can't pay. We will take this money from your account seven days from the date of this letter. If it causes you to have an unauthorised overdraft, we will also charge you interest at the unauthorised rate and a monthly unauthorised overdraft fee of £28." The wording of the letter describes the reason for the charge (because the Bank didn't pay the item), the amount of the charge (£39) and what the charge is actually for (to cover costs). e) Furthermore, in 2007 in response to a number of complaints about charges, Halifax PLC wrote : "When you opened your account, you agreed to our terms and conditions which explained that charges would be applied if you did not keep to the terms of the account." "We apply these charges because when customers have insufficient funds in their account to cover a payment they have asked us to make, this means additional work for us. As a result we feel it is reasonable to charge for this service." "As previously explained, the charges you are asking us to refund are our fees for the additional work that we carry out when a Customer requests a payment without insufficient funds in their account." "If you continue to manage your account in this way, future charges will be applied to your account." "If you need greater flexibility, we may be able to help you by providing an overdraft or extending your overdraft facility. This can help to keep the costs of any unauthorised transactions down." and additionally a response from HSBC in reply to a Consumer‘s complaint regarding excessive overdraft charges during 2007:
“In the Terms and Conditions prior to September 2007 the above stated explanation, would not have used the terminology of „informal overdraft‟ they would have described the fees being incurred as default charges as the account is not running within its agreed limit. In the most recent Terms and Conditions the charges are no longer described as default charges. I apologise for any confusion to you regarding his matter.” These letters and others like them, whilst not contractual, clearly link the charges to breaches of the terms and conditions, link the charges to failed transactions owing to insufficient funds and confirm the charges are intended to cover the costs of the extra work involved. This is contrary to the banks' submissions that the fees are for the overall package and meant to cross subsidise 'free-if-in-credit' model of banking. f) Our database of such letters is currently in the process of being compiled and will be forwarded to the OFT in due course. CONSEQUENCES OF THE OFT's DECISION We actually found this quite a complicated area to cover particularly because Consumers have been so massively affected in all areas by previous charging structures and levels. If the OFT do not continue: In the event the OFT decide not to continue with the UTCCR investigation, we consider some the likely consequences to be as follows:-
A widespread reduction in Consumer confidence in the OFT and other Government bodies.
Concerns related to the wasted costs in terms of money and resources involved in the UTCCR investigation to date.
Concerns that the banks will raise PCA charges (which can be countered by other work undertaken in the market - the OFT will need to reassure consumers that prices and charging structures of PCAs have become and will continue to be more competitive, transparent and fairer and that regulation in the market will be strengthened and monitoring continued).
There would be no redress on historical charges - Consumers feel that the changes in the system over the past three years are evidence that the previous levels and structures were unfair and unreasonably high and the structures in place unfair and opaque. The charges have had massive effects on individuals overall life - finances, relationships, businesses, homes, health, the list is endless. The lack of fairness or compassion shown by the banks to individuals prior to and during the investigation has massively
impacted Consumer confidence in the banks and the regulators and they want recompense for the failings.
A number of Consumers with stayed County Court claims would most likely wish to continue their claims on an individual basis. Whether they actually did so would depend upon their confidence in their own ability to litigate in person. This would of course disadvantage less able or less confident Consumers and would cause renewed chaos in the County Court system. Most Consumers pursuing their own claims in this manner would expect or hope that the Banks would settle in advance of a formal Court hearing. However, because of the complexities of the legal arguments involved these matters would quite quickly have to be taken to the High Court rather than the County Court and no individual Consumer is likely to be able to pursue this course of action owing to both cost and complexity. Such an action would have to be pursued via some form of Representative action and it is unlikely that such a Representative action could or would be entertained if there was no participation in the form of an ongoing investigation by the OFT.
Seasoned Campaign Groups may also be concerned about 'letting Consumers down' and may push their visitors and members into court on the same and further developed arguments the OFT have declined to continue with. This also creates the risk of pushing Consumers further into debt whilst they try to keep overdraft debts in dispute whilst these cases progress.
Consumer groups would also be forced to seek or pursue solutions to the Bank charges scenario via political and or parliamentary routes. The Government will be asked to intervene and look again at legislation and independent regulation of the banks
Consumers who have had overdrafts/debt on hold whilst the investigation was ongoing are concerned about the speed and ferocity with which the banks will demand repayment of this money. Overdrafts, even whilst in dispute, have been subject to charges upon charges upon charges increasing the debt over the past three years. Banks have also taken legal action against Consumers who disputed overdraft debt as being made up of charges to enforce repayment - these claims in many cases have also been put on hold by the courts pending the resolution of the test case. Some of these will be for thousands of pounds, and made up almost entirely of bank charges. Debt Collection Guidelines (OFT 664) and regulation MUST be highlighted and adhered to by the banks. We would like to see some form of leniency/breathing space for these Consumers and the banks to accept repayment plans evidenced as affordable before pushing for charging/sale orders
Banks asking for ''wasted costs'' etc on claims in the system prior to Nov 25th.
Amnesty of interest and charges incurred on abandoned overdrafts pending test case (goodwill / PR for banks).
Future of Credit Card claims - will the OFT proceed to obtain legal clarity on those issues.
Conspiracy Theories abound
Will there be a competition investigation
Continuance of PCA Market Study and release and implementation of findings with regards to charges. The OFT have already found the charges unfair (ref August 2008 letters) How will they take that forward without litigation?
Other subjects which will be raised; much of this will be expanded on in our PCA report update.
The Governments inclusion scheme pushing people into banking - exposing people to charges.
Benefits - claimants being 'encouraged' into opening bank accounts rather than using POCA
Strengthened Regulation of processing of hardship complaints - refer Lending Code Section 9.
Banks encouraged to accept repayment plans from consumers on Overdrafts BEFORE there is a problem
Refunds for periods of hardship - clarification if this can continue under BCOBS and Lending Code (historically under Banking code)
Refunds on charges and interest added on overdrafts where they have been added whilst the charges and thus the debt had been in dispute.
If the OFT continue:
Consumer Groups are mainly concerned with the issues of power and control afforded to the Banks by these contracts and would continue to have confidence and are relying upon the OFT to fulfil its obligations.
The majority of Consumers are already disappointed by the OFT and the UK legal system and the apparent failure to provide legal clarity for these issues. The possibility exists for the OFT to repair this disappointment and stamp it‘s authority as the UK‘s official Regulator and enforcer.
Many Consumers are frustrated at the amount of time taken to date with the original test case and would of course be disappointed if a further lengthy court battle were to be embarked upon. However, most Consumers would rather have eventual certainty and clarity rather than no clear legal solution at all.
The OFT are unlikely to ever have a more important case to administer. Virtually every UK Consumer is affected, the value, not just in monetary terms, is enormous and the potential benefits for Consumer contract regulation are extremely tangible.
The OFT would be continuing its investigation under the UTCCR‘s, plus pursuing change in the market via its PCA report and or via the competition route. Plus, if it were to also consider the possibility of joining or being joined in litigation by a Consumer Representative Action aimed at resolving historic plus non UTCCR issues together with legal redress, limitation and compensation then the OFT would not have wasted two years of cost, experience and acquired knowledge of the intimate workings of the Banks' charging systems. It is extremely unlikely however that Representative action could be undertaken if the OFT were not to continue its investigation.
Most Consumers would be 100% behind the OFT continuing its investigation, even if the Banks continued on their so called charges reduction program and charges were reduced to say only 2p. The present status of the contract and the lack of Consumer control in the contract is unacceptable and disproportionately in favour of the Banks. Every Consumer is at risk from the future excesses of effectively unregulated PCA contracts.
Should the OFT decide to continue then the status of stayed claims in court, overdrafts in dispute and the terms of any new waiver need to be made clear immediately.
CONCLUSION
We urge the OFT to continue the investigation to achieve legal clarity and certainty and thank you for enabling our views to be heard on behalf of Legalbeagles.info
Download the full report - Legal Beagles PDF
From the conclusion of the report
CONSEQUENCES OF THE OFT's DECISION
We actually found this quite a complicated area to cover particularly because Consumers have been so massively affected in all areas by previous charging structures and levels.
If the OFT do not continue:
In the event the OFT decide not to continue with the UTCCR investigation, we consider some the likely consequences to be as follows:-
A widespread reduction in Consumer confidence in the OFT and other Government bodies.
Concerns related to the wasted costs in terms of money and resources involved in the UTCCR investigation to date.
Concerns that the banks will raise PCA charges (which can be countered by other work undertaken in the market - the OFT will need to reassure consumers that prices and charging structures of PCAs have become and will continue to be more competitive, transparent and fairer and that regulation in the market will be strengthened and monitoring continued).
There would be no redress on historical charges - Consumers feel that the changes in the system over the past three years are evidence that the previous levels and structures were unfair and unreasonably high and the structures in place unfair and opaque. The charges have had massive effects on individuals overall life - finances, relationships, businesses, homes, health, the list is endless. The lack of fairness or compassion shown by the banks to individuals prior to and during the investigation has massively
impacted Consumer confidence in the banks and the regulators and they want recompense for the failings.
A number of Consumers with stayed County Court claims would most likely wish to continue their claims on an individual basis. Whether they actually did so would depend upon their confidence in their own ability to litigate in person. This would of course disadvantage less able or less confident Consumers and would cause renewed chaos in the County Court system. Most Consumers pursuing their own claims in this manner would expect or hope that the Banks would settle in advance of a formal Court hearing. However, because of the complexities of the legal arguments involved these matters would quite quickly have to be taken to the High Court rather than the County Court and no individual Consumer is likely to be able to pursue this course of action owing to both cost and complexity. Such an action would have to be pursued via some form of Representative action and it is unlikely that such a Representative action could or would be entertained if there was no participation in the form of an ongoing investigation by the OFT.
Seasoned Campaign Groups may also be concerned about 'letting Consumers down' and may push their visitors and members into court on the same and further developed arguments the OFT have declined to continue with. This also creates the risk of pushing Consumers further into debt whilst they try to keep overdraft debts in dispute whilst these cases progress.
Consumer groups would also be forced to seek or pursue solutions to the Bank charges scenario via political and or parliamentary routes. The Government will be asked to intervene and look again at legislation and independent regulation of the banks
Consumers who have had overdrafts/debt on hold whilst the investigation was ongoing are concerned about the speed and ferocity with which the banks will demand repayment of this money. Overdrafts, even whilst in dispute, have been subject to charges upon charges upon charges increasing the debt over the past three years. Banks have also taken legal action against Consumers who disputed overdraft debt as being made up of charges to enforce repayment - these claims in many cases have also been put on hold by the courts pending the resolution of the test case. Some of these will be for thousands of pounds, and made up almost entirely of bank charges. Debt Collection Guidelines (OFT 664) and regulation MUST be highlighted and adhered to by the banks. We would like to see some form of leniency/breathing space for these Consumers and the banks to accept repayment plans evidenced as affordable before pushing for charging/sale orders
Banks asking for ''wasted costs'' etc on claims in the system prior to Nov 25th.
Amnesty of interest and charges incurred on abandoned overdrafts pending test case (goodwill / PR for banks).
Future of Credit Card claims - will the OFT proceed to obtain legal clarity on those issues.
Conspiracy Theories abound
Will there be a competition investigation
Continuance of PCA Market Study and release and implementation of findings with regards to charges. The OFT have already found the charges unfair (ref August 2008 letters) How will they
take that forward without litigation?
Other subjects which will be raised; much of this will be expanded on in our PCA report update.
The Governments inclusion scheme pushing people into banking - exposing people to charges.
Benefits - claimants being 'encouraged' into opening bank accounts rather than using POCA
Strengthened Regulation of processing of hardship complaints - refer Lending Code Section 9.
Banks encouraged to accept repayment plans from consumers on Overdrafts BEFORE there is a problem
Refunds for periods of hardship - clarification if this can continue under BCOBS and Lending Code (historically under Banking code)
Refunds on charges and interest added on overdrafts where they have been added whilst the charges and thus the debt had been in dispute.
If the OFT continue:
Consumer Groups are mainly concerned with the issues of power and control afforded to the Banks by these contracts and would continue to have confidence and are relying upon the OFT to fulfil its obligations.
The majority of Consumers are already disappointed by the OFT and the UK legal system and the apparent failure to provide legal clarity for these issues. The possibility exists for the OFT to repair this disappointment and stamp it‘s authority as the UK‘s official Regulator and enforcer.
Many Consumers are frustrated at the amount of time taken to date with the original test case and would of course be disappointed if a further lengthy court battle were to be embarked upon. However, most Consumers would rather have eventual certainty and clarity rather than no clear legal solution at all.
The OFT are unlikely to ever have a more important case to administer. Virtually every UK Consumer is affected, the value, not just in monetary terms, is enormous and the potential benefits for Consumer contract regulation are extremely tangible.
The OFT would be continuing its investigation under the UTCCR‘s, plus pursuing change in the market via its PCA report and or via the competition route. Plus, if it were to also consider the possibility of joining or being joined in litigation by a Consumer Representative Action aimed at resolving historic plus non UTCCR issues together with legal redress, limitation and compensation then the OFT would not have wasted two years of cost, experience and acquired knowledge of the intimate workings of the Banks' charging systems. It is extremely unlikely however that Representative action could be undertaken if the OFT were not to continue its investigation.
Most Consumers would be 100% behind the OFT continuing its investigation, even if the Banks continued on their so called charges reduction program and charges were reduced to say only 2p. The present status of the contract and the lack of Consumer control in the contract is unacceptable and disproportionately in favour of the Banks. Every Consumer is at risk from the future excesses of effectively unregulated PCA contracts.
Should the OFT decide to continue then the status of stayed claims in court, overdrafts in dispute and the terms of any new waiver need to be made clear immediately.
CONCLUSION
We urge the OFT to continue the investigation to achieve legal clarity and certainty and thank you for enabling our views to be heard on behalf of Legalbeagles.info
Its much easier to read the PDF version which you can download below
LEGAL BEAGLES REPORT TO THE OFFICE OF FAIR TRADING DECEMBER 2009
Legal Beagles are a free-to-join internet forum offering help, support and advice to the general public who have issues involving Consumer rights. Legal Beagles was formed and went live in May 2007. We have a rapidly increasing membership and currently have just over 6600 registered users of which almost 50% are active during any month, plus a daily viewing of over 2000 non registered guests. High proportions of our registered users are currently reclaiming or have previously reclaimed bank overdraft, PPI or credit card fees, or are suffering with financial hardship and general debt issues. We work closely with many other similar forums, sharing information and discussing issues. Consumers are often directed between Consumer sites to where there may be more specialist advice suitable to their needs. As we are accessible 24 hours a day every day of the year, we can provide real time help for people that need one-on -one support and advice over the many consumer issues that arise from day to day. Through helping Consumers with difficulties in the main attributed to the financial services industry, a strong community spirit has formed and is very much a feature of our site. We are funded by donations from private individuals.
INTRODUCTION
The personal current account (PCA) may well be a cornerstone of Britain‘s retail financial system, but for the vast majority of adults it means far more than that: it is a central and essential component of 21st century life. PCAs are the gateway into the economy for much of Britain‘s household consumption. PCAs allow for the regular payment of rent or a mortgage, utility bills, food, clothing, and a myriad of other essentials that are integral to modern life. The PCA represents the economic infrastructure by which our work, wages and savings are recycled into the economy. In this respect, we believe that the PCA is an essential utility and not merely a service. This is further evidenced by the government's financial inclusion scheme. Whilst Banks continue to operate PCAs on a purely commercial and highly profitable basis, it represents a failure by the Banks, the Government and the Regulators to fully appreciate the nature of the PCA as an essential component of our national economic infrastructure. Given the historic failures within the banking system to address concerns over competition and consumer protection, it is apparent that purely commercial interests cannot be left to dictate the future direction of the PCA. If we were to rewrite the banks' current position on overdraft assessment it might read thus; "We have the right to provide a service we feel may be of use to you, even if it is not strictly necessary, and you have the obligation to pay us whatever fee we determine for these services. You have no right to decline these services." Even if the service was currently free, that would be enough to send a shiver down anyone's spine.
SHOULD THE OFT CONTINUE IT'S UTCCR1999 INVESTIGATION
The test case was only ever a part of the OFT's UTCCR1999 investigation and clearly the Supreme Court judgment only ruled on one single aspect of the regulations (the ‗price‘) without exploring the rest. The fact that the Supreme Court offered the OFT another route under regulation 5 is significant. After all, how many last instance judgments offer the losing party an alternative? If the OFT don‘t take it up, Consumers will feel terribly let down by the OFT, the Regulators that were designed to protect them, and the process itself. In the meantime we need the PCA Market Study findings on charging levels and structures announced and implemented. Consumers cannot or should not be expected to suffer a further three years of a one sided waiver with which the banks are irrevocably protected by when it suits them yet they continue to ignore the OFT‘s and Regulators' guidance on disputed accounts, continue applying charges to those in genuine hardship, and continue to pass accounts to debt collection agencies and pursuing court action against individuals. The test case was initiated to provide ‗legal clarity and certainty‗. In short, it hasn‘t. And as such provides the very reason why the investigation should continue.
HOW THE RELEVANT CHARGES STAND IN LAW
Over 12 million bank customers pay the Relevant Charges each year, averaging £240 per customer per year, and around 1 million are presently contesting these as unfair via the banks complaints systems and around 65,000 through the County Courts. As a result of the recent Supreme Court judgment we know the following about the Relevant Charges:
i. they apparently do not exist purely to deter the Consumer behaviour that generates them and they are not capable of being penalties under a contractual construction. The Banks rely on them to cross-subsidise the free-if-in-credit model.
ii. They are a charge for services rather than default (breach of contract).
iii. They are not ancillary to the price of a current account; they are a core part of it in exchange for the overall package of services.
iv. They are described in Plain Intelligible Language (PIL). v. As service charges they are exempt from assessment for fairness under the UTCCR 1999 Reg. 6(2). vi. Other areas of the UTCCR might allow assessment of fairness, not on the basis of price, but must be within the context of the overall contract.
vii. The judgment was on a narrow legal issue and doesn't mean other laws /regulations can't be applied. On first reading, the judgment may appear to have severely hindered the attempts to assess the Relevant Charges for fairness. However, as a result of the judgment there may be new approaches to the matter. ALTERNATIVE AND NEW APPROACHES Below are six areas of law under which the Relevant Charges might still be considered unfair, unlawful and open to investigation. This is by no means an exhaustive list, but these appear promising as they are consistent with and in some cases complementary to one another.
1. UTCCR Reg. 5(1) – An imbalance of rights and obligations, contrary to good faith, and to the detriment of the consumer.
2. The Misrepresentation Act 1967 or common law Mistake
3. The Competition Act 1998, Chapter II
4. Undue influence (common law)
5. CCA 1974 (as amended), s140A & 140B – unfair relationship
6. Common law penalty
1) UNFAIRNESS PER UTCCR 1999 REGULATION 5 (1)
Regulation 5 (1) states: 5. - (1) A contractual term which has not been individually negotiated shall be regarded as unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties' rights and obligations arising under the contract, to the detriment of the consumer.
The Arguments:
a) We believe that the Relevant Terms are contrary to the requirements of good faith, as they cause a significant imbalance in the parties' rights and obligations arising under the contract, to the detriment of the Consumer. We are of the opinion that, by analogy to paragraph (e)of Schedule 2 to the 1999 Regulations: Indicative and Non-Exhaustive List of terms which may be regarded as unfair, that the Terms which are unfair include those that are ―Requiring any consumer who fails to fulfil his obligation to pay a disproportionately high sum in compensation‖ Notwithstanding the belief that the UTCCR1999 regulations were not specifically intended to cover financial services such as PCA's it is unthinkable that the original intention of regulation 6.2 would be to totally preclude an assessment of fairness as to price under Regulation 5 (1) using some of the price based reasons for unfairness as referenced in the ‗grey terms‘ Schedule 2 including paragraph (e).
We believe that regulation 6.2 must have originally been intended as a standalone clause in respect of a limited number of potential issues and not an all encompassing ‗get out of jail‘ free type clause. We believe that there is an incredibly strong case here for referral to the European Court as an integral part of a new legal action. Clarification on this matter together with other uncertain areas such as burden of proof‘ and cycle of debt caused by application of contingent fees' are areas where clarification by the European Court could be sought. We are presently still formulating our full argument in respect of this particular issue and will provide further information shortly.
b) The other reasons would include (for example) arguments related to Schedule 2 paragraph e ―Requiring any Consumer who fails to fulfil his obligation to pay a disproportionately high sum in compensation.‖
c) We consider that the Banks can choose which service they offer without consideration for or confirmation of what the Consumer intended. For example Banks could consider a request for overdraft and pay or simply reject payment on grounds of lack of funds. In performing these services the Banks act as agent for the Consumer and therefore should have had regard to the Consumer‘s intent. The Consumer‘s intent may be for the request to be facilitated if there are sufficient funds, to be rejected if there are not or to be asked for confirmation (where practicable) otherwise. However the contract denies the Consumer the opportunity to express that or any specific intent other than that determined by the Banks.
d) We consider that a request to pay is not necessarily a request for overdraft except by virtue of the non-negotiated contract terms. The overdraft assessment is not optional, additionally there was no opt out possibility at commencement of the contract and therefore it acts contrary to good faith and is therefore unfair.
e) We suggest that if an 'overdraft extension request' was declined, there is no reason why the Bank's answer for any subsequent requests should be any different if the account balance has not changed other than by virtue of the Relevant Charges being applied? The Consumer could therefore not intend subsequent payments to be requests for assessment, and it would be to their detriment for them to be regarded as such. If the fee was argued to be for checking the Consumer's account, the Banks would actually be providing the same service as they otherwise provide for free and therefore no further consideration should be required unless the circumstances are materially different.
f) It is beyond dispute that the relevant terms were not available to Consumers in advance, or have been included in the relevant contracts since conclusion. Either way Consumers have become irrevocably bound to terms with which they had no real opportunity of becoming acquainted before the conclusion of the contract or were unable to negotiate if they were included after conclusion.
g) It is apparent that the individual Consumer is required to subsidise the running and/or operation costs of accounts other than that of the individual Consumer. In so doing so the Bank‘s charging structure reverses the usual pattern of cross subsidisation by delivering heavily subsidised banking services to those with the most financial competence or resources at the expense of those with the least.
h) We contend that the Banks have control over the distribution of the Consumer‘s salary or benefits, and the relevant terms allow for the automatic application of the relevant Charges, with little or no notice to the Consumer.
i) In our experience the Banks, by virtue of the relevant contracts, have priority over the Consumer‘s other debtors with regards to the application and payment of the relevant Charges to the Account. There is no consideration in advance of applying the charge as to whether or not the bank applies the charge.
j) Additionally, the The Banks' contracts include a right of offset by which they are able to offset an unauthorised overdraft from a Consumer's savings or other account. An imbalance exists in the contract as there is no equivalent equitable arrangement in favour of the Consumer. There is no contractual means by which additional funds, required to enable payment of a transaction and which would otherwise trigger relevant charges, could automatically be transferred from a Consumer's savings account to the relevant personal current account by the Bank. k) In our experience the relevant terms have frequently forced individual Consumers into a cycle of debt, where the Relevant Charges directly or indirectly give rise to the application of additional charges to the account, without any restriction or limitation.
2) MISREPRESENTATION
It may be possible to bring arguments under the Misrepresentation Act 1967 or, at common law, as a unilateral mistake from which the banks knowingly benefited. Historically either;
The banks misrepresented that their relevant terms were penal as opposed to contracting to provide services, or
The banks were aware of their Customer‘s 'mistaken belief' that their relevant terms were penal but failed to correct this, to the detriment of the Consumer but to the benefit of the Banks, or
The banks were aware that the relevant terms were penal in nature but realised they could argue they were in exchange for a package of services and misrepresented to the court accordingly.
In any case, Consumers would aver that they had been acting on a misrepresented but reasonable assumption that the relevant terms were related to costs rather than service charges and would contend that the charges should not have been part of the consideration in exchange for any so called contracted 'package' of services. Should it matter if the relevant charges are for a service disguised as a penalty or for a cross subsidy disguised as a service? At the end of the day it is £2 disguised as £38 and simply a deceitful description.
3) COMPETITION Consumers suffered loss due to the anti-competitive behaviour of the Banks. The Competition Act 1998, Chapter II 18 Abuse of dominant position
(1) Subject to section 19, any conduct on the part of one or more undertakings which amounts to the abuse of a dominant position in a market is prohibited if it may affect trade within the United Kingdom.
(2) Conduct may, in particular, constitute such an abuse if it consists in— (a) directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions;
The argument: • Chapter 2 is usually difficult to apply to oligopolies as it is hard to demonstrate the collective dominant position. However, the banks have publicly admitted to the collective dominant position via the British Banking Association (BBA) and individually all UK banks are members of the BBA – this covers 100% of personal current account providers.
• The stated position is that free-if-in-credit is the banks' preferred model and there is general agreement to keep to this model. This model relies on cross-subsidy via the Relevant Charges.
• The free-if-in-credit model is effectively price discrimination on the basis of property, i.e. the less money a customer has, the higher the overall cost of the package account.
• This is evidenced by the OFT PCA study data showing customers with less than £1000 in savings are much more likely to incur charges.
• Also, from the Supreme Court judgment, bank revenue from these charges accounts for 30% of revenue from only 20% of the customer base
. • Banks, via the Relevant Terms, because the overall price of an account to be higher than in a competitive market for the people that incur them. This is evidenced by the OFT PCA study data showing a steep upward trend in Relevant Charge levels over the years.
• Therefore the banks may be in breach of Chapter 2 by imposing unfair selling prices upon and engaging in price discrimination against their most vulnerable customers.
We have long suspected that the banks collude to artificially maintain the price of insufficient funds charges. During a House of Commons Scottish Affairs select committee oral evidence session - 'Banking in Scotland' - in March this year, Group Chief Executive, Scotland, for Lloyds Banking Group, in answer to question 366, told the committee that ''The banking industry has generally come to an agreement that they will charge certain amounts for overdraft letters.'' Uncorrected Evidence 319 4)
UNDUE INFLUENCE
a) It has long been recognised that the relationship between banker and customer is that of debtor-creditor (Foley v Hill 1848)
b) It is also recognised that when the banker transacts on the customer's instruction he does so as agent (Westminster Bank Ltd v Hilton 1923)
c) These transactionary functions were originally described as 'superadded', or extra to the main bargain, 'by custom' (Foley v Hill 1848)
d) The Supreme Court has ruled that current accounts are contracted as a package of services and that is the main bargain - these services are not ancillary or extra (OFT v Abbey National 2009)
e) These services are provided not against the customer's money, as it is now the bank's, but against the resulting chose in action constituted by the account.
f) It follows that in the context of modern current accounts the main relationship is no longer banker-customer rather service provider-customer; the majority of transactions are no longer deposits and debits between banker and client, rather credits and debits between the customer and third parties via the bank.
g) Under common law Undue Influence lends support to this characterisation, not by automatically presuming an agent-principal relationship, but deriving the characteristics of such a relationship in the particular case (National Westminster Bank plc v Morgan 1985)
h) The exact nature of a relationship is determined by contract but also by the level of trust, confidence, reliance, dependence and vulnerability of the customer. (Royal Bank of Scotland v Etridge 2001)
i) Where the customer pays their wages / benefits into the hands of the bank it is submitted that to do so requires a high degree of trust and confidence in the way the bank will transact against the resulting account.
j) Where most of the customer's outgoings are through the account it is submitted there is reliance and even a dependence upon the bank.
k) Where the customer has no great savings in the event of misfortune, it is submitted that the customer is vulnerable.
l) When all the above is true and where the customer is already indebted to the bank it is submitted that the customer is yet more vulnerable.
m) It is not unusual for points (i) through (l) to be true in an individual case.
n) Given that the customer allows the bank to make use of their money as if the banks own, or pays interest to the bank for their debts, it is submitted that it would be inequitable to allow the bank to take advantage of the customer's circumstances.
o) It is submitted that any transactions entered into that are manifestly against the customer's interest are done so under undue influence.
p) This undue influence arises either as an abuse of the agent-principal relationship when transacting against the account or alternatively, due to abuse of the circumstances described at points (i) through (l) above, amounting to the same. Also:
q) The customer may be vulnerable in addition to the above because they lack understanding of the complex charge structure (item fee / daily fee / monthly fee) and how this will operate upon their account.
r) Furthermore, daily maintenance fees are unnecessary to both the customer and the bank. When the overdraft assessment is initially performed the bank should be able to determine how long they are willing to loan the money for so a daily assessment is redundant. The customer understands that the overdraft is repayable on demand and is already paying interest at the 'unauthorised' overdraft rate. This is an artificial device to inflate the interest rate beyond what would normally be considered an acceptable level, again made possible by the undue influence of the bank.
s) As noted above, when Relevant Transactions are manifestly not in the customer's interest they are only entered into because of the bank's undue influence. t) It is strange that companies providing such a fundamental service to our society cannot be assumed to be trustworthy? It's hard to imagine
that caveat emptor should be applied to stock brokers, personal assistants or the Post Office for example - we should be able to trust these agents implicitly. u) The fundamental service isn't using our money for their own ends; it's in acting as our financial intermediary.
5) CCA 1974 (as amended), UNFAIR RELATIONSHIP
a) We consider there was an unfair relationship in favour of the Banks per s140A & s140B of the CCA 1974 (as amended) due to the behaviour and conditions described above.
b) Alternatively, or in addition, this unfair relationship existed because the relevant terms operated on the Consumer's account to create an unfavourable financial position, thereby limiting the Consumer‘s ability to switch accounts, or to negotiate.
c) Additionally, the Banks further compounded the unfavourable financial situation of the Consumer by increasing the Relevant Charges over a number of years (contrary to and or in excess of what a competitive market would normally expect or allow).
6) THE COMMON LAW PENALTY ARGUMENT REVISITED a) Prior to the Test Case most Consumers believed the relevant terms to be unenforceable common law penalties. b) Justice Smith's High Court judgment stated that the relevant terms were incapable of being common law penalties, because it was not possible, using a contractual construction of the standard terms, to link the relevant terms directly with a breach of contract. c) However, Justice Smith only reviewed certain terms from certain periods from each of the Banks. Not taken into consideration were the Bank‘s charge notification letters. These letters clearly form part of the overall PCA contract just as the leaflets detailing the various amounts of the charges are an integral part of the contract. d) We are currently compiling a database of such letters for each of the Banks. Our initial findings convince us that these letters clearly link a breach of contract, on the Consumer's part, with the resultant charging term and amount. The charges were in respect of failure to have sufficient funds in the account to meet transaction instructions and were levied by
the bank to cover the increased costs to which they were put as a result of the breach. These matters are linked in the letter whereas they are not linked in the generic terms and conditions. This further adds to the argument for misrepresentation. There is a wealth of documentary and anecdotal evidence than that shown below to prove this is the case. Example of typical wording on charge notification letters Halifax PLC " We haven't been able to pay the item (s) shown below because there wasn't enough money in your account. To cover our costs, we make a charge of £39 (maximum 3 charges per day) for any item we can't pay. We will take this money from your account seven days from the date of this letter. If it causes you to have an unauthorised overdraft, we will also charge you interest at the unauthorised rate and a monthly unauthorised overdraft fee of £28." The wording of the letter describes the reason for the charge (because the Bank didn't pay the item), the amount of the charge (£39) and what the charge is actually for (to cover costs). e) Furthermore, in 2007 in response to a number of complaints about charges, Halifax PLC wrote : "When you opened your account, you agreed to our terms and conditions which explained that charges would be applied if you did not keep to the terms of the account." "We apply these charges because when customers have insufficient funds in their account to cover a payment they have asked us to make, this means additional work for us. As a result we feel it is reasonable to charge for this service." "As previously explained, the charges you are asking us to refund are our fees for the additional work that we carry out when a Customer requests a payment without insufficient funds in their account." "If you continue to manage your account in this way, future charges will be applied to your account." "If you need greater flexibility, we may be able to help you by providing an overdraft or extending your overdraft facility. This can help to keep the costs of any unauthorised transactions down." and additionally a response from HSBC in reply to a Consumer‘s complaint regarding excessive overdraft charges during 2007:
“In the Terms and Conditions prior to September 2007 the above stated explanation, would not have used the terminology of „informal overdraft‟ they would have described the fees being incurred as default charges as the account is not running within its agreed limit. In the most recent Terms and Conditions the charges are no longer described as default charges. I apologise for any confusion to you regarding his matter.” These letters and others like them, whilst not contractual, clearly link the charges to breaches of the terms and conditions, link the charges to failed transactions owing to insufficient funds and confirm the charges are intended to cover the costs of the extra work involved. This is contrary to the banks' submissions that the fees are for the overall package and meant to cross subsidise 'free-if-in-credit' model of banking. f) Our database of such letters is currently in the process of being compiled and will be forwarded to the OFT in due course. CONSEQUENCES OF THE OFT's DECISION We actually found this quite a complicated area to cover particularly because Consumers have been so massively affected in all areas by previous charging structures and levels. If the OFT do not continue: In the event the OFT decide not to continue with the UTCCR investigation, we consider some the likely consequences to be as follows:-
A widespread reduction in Consumer confidence in the OFT and other Government bodies.
Concerns related to the wasted costs in terms of money and resources involved in the UTCCR investigation to date.
Concerns that the banks will raise PCA charges (which can be countered by other work undertaken in the market - the OFT will need to reassure consumers that prices and charging structures of PCAs have become and will continue to be more competitive, transparent and fairer and that regulation in the market will be strengthened and monitoring continued).
There would be no redress on historical charges - Consumers feel that the changes in the system over the past three years are evidence that the previous levels and structures were unfair and unreasonably high and the structures in place unfair and opaque. The charges have had massive effects on individuals overall life - finances, relationships, businesses, homes, health, the list is endless. The lack of fairness or compassion shown by the banks to individuals prior to and during the investigation has massively
impacted Consumer confidence in the banks and the regulators and they want recompense for the failings.
A number of Consumers with stayed County Court claims would most likely wish to continue their claims on an individual basis. Whether they actually did so would depend upon their confidence in their own ability to litigate in person. This would of course disadvantage less able or less confident Consumers and would cause renewed chaos in the County Court system. Most Consumers pursuing their own claims in this manner would expect or hope that the Banks would settle in advance of a formal Court hearing. However, because of the complexities of the legal arguments involved these matters would quite quickly have to be taken to the High Court rather than the County Court and no individual Consumer is likely to be able to pursue this course of action owing to both cost and complexity. Such an action would have to be pursued via some form of Representative action and it is unlikely that such a Representative action could or would be entertained if there was no participation in the form of an ongoing investigation by the OFT.
Seasoned Campaign Groups may also be concerned about 'letting Consumers down' and may push their visitors and members into court on the same and further developed arguments the OFT have declined to continue with. This also creates the risk of pushing Consumers further into debt whilst they try to keep overdraft debts in dispute whilst these cases progress.
Consumer groups would also be forced to seek or pursue solutions to the Bank charges scenario via political and or parliamentary routes. The Government will be asked to intervene and look again at legislation and independent regulation of the banks
Consumers who have had overdrafts/debt on hold whilst the investigation was ongoing are concerned about the speed and ferocity with which the banks will demand repayment of this money. Overdrafts, even whilst in dispute, have been subject to charges upon charges upon charges increasing the debt over the past three years. Banks have also taken legal action against Consumers who disputed overdraft debt as being made up of charges to enforce repayment - these claims in many cases have also been put on hold by the courts pending the resolution of the test case. Some of these will be for thousands of pounds, and made up almost entirely of bank charges. Debt Collection Guidelines (OFT 664) and regulation MUST be highlighted and adhered to by the banks. We would like to see some form of leniency/breathing space for these Consumers and the banks to accept repayment plans evidenced as affordable before pushing for charging/sale orders
Banks asking for ''wasted costs'' etc on claims in the system prior to Nov 25th.
Amnesty of interest and charges incurred on abandoned overdrafts pending test case (goodwill / PR for banks).
Future of Credit Card claims - will the OFT proceed to obtain legal clarity on those issues.
Conspiracy Theories abound
Will there be a competition investigation
Continuance of PCA Market Study and release and implementation of findings with regards to charges. The OFT have already found the charges unfair (ref August 2008 letters) How will they take that forward without litigation?
Other subjects which will be raised; much of this will be expanded on in our PCA report update.
The Governments inclusion scheme pushing people into banking - exposing people to charges.
Benefits - claimants being 'encouraged' into opening bank accounts rather than using POCA
Strengthened Regulation of processing of hardship complaints - refer Lending Code Section 9.
Banks encouraged to accept repayment plans from consumers on Overdrafts BEFORE there is a problem
Refunds for periods of hardship - clarification if this can continue under BCOBS and Lending Code (historically under Banking code)
Refunds on charges and interest added on overdrafts where they have been added whilst the charges and thus the debt had been in dispute.
If the OFT continue:
Consumer Groups are mainly concerned with the issues of power and control afforded to the Banks by these contracts and would continue to have confidence and are relying upon the OFT to fulfil its obligations.
The majority of Consumers are already disappointed by the OFT and the UK legal system and the apparent failure to provide legal clarity for these issues. The possibility exists for the OFT to repair this disappointment and stamp it‘s authority as the UK‘s official Regulator and enforcer.
Many Consumers are frustrated at the amount of time taken to date with the original test case and would of course be disappointed if a further lengthy court battle were to be embarked upon. However, most Consumers would rather have eventual certainty and clarity rather than no clear legal solution at all.
The OFT are unlikely to ever have a more important case to administer. Virtually every UK Consumer is affected, the value, not just in monetary terms, is enormous and the potential benefits for Consumer contract regulation are extremely tangible.
The OFT would be continuing its investigation under the UTCCR‘s, plus pursuing change in the market via its PCA report and or via the competition route. Plus, if it were to also consider the possibility of joining or being joined in litigation by a Consumer Representative Action aimed at resolving historic plus non UTCCR issues together with legal redress, limitation and compensation then the OFT would not have wasted two years of cost, experience and acquired knowledge of the intimate workings of the Banks' charging systems. It is extremely unlikely however that Representative action could be undertaken if the OFT were not to continue its investigation.
Most Consumers would be 100% behind the OFT continuing its investigation, even if the Banks continued on their so called charges reduction program and charges were reduced to say only 2p. The present status of the contract and the lack of Consumer control in the contract is unacceptable and disproportionately in favour of the Banks. Every Consumer is at risk from the future excesses of effectively unregulated PCA contracts.
Should the OFT decide to continue then the status of stayed claims in court, overdrafts in dispute and the terms of any new waiver need to be made clear immediately.
CONCLUSION
We urge the OFT to continue the investigation to achieve legal clarity and certainty and thank you for enabling our views to be heard on behalf of Legalbeagles.info
