Financial Ombudsman rejecting complaints on Bank Charges

[Amethyst]

Following the Supreme Court Judgment in the Bank Charges test case the Financial Ombudsman have over the last week been sending out letters to complainants rejecting their complaints and confirming the adjudication service will not be pushing for banks to issue refunds of charges.

The Financial Ombudsman Service put claims on hold alongside the banks and the courts when the OFT commenced action in July 2007. However before then, and since, they have not upheld a single case which complained of excessive bank charges on the grounds that they were unfair under the Unfair Terms in Consumer Contracts Regulations. Banks have previously always settled before adjudication has been necessary, in straight bank charges complaints and those involving financial hardship.

They have published a brief FAQ on their site - FAQs complaints about bank charges

The letters state

''"I am writing regarding your complaint to us about the unautorised overdraft charges made to your current account.

The Office of Fair Trading brought an important legal "test case" to establish if it could assess whether the amounts the banks were charging were fair. As part of this legal "test case", the Court was also asked to consider whether these types of charges amounted to "penalties".

As you know, we decided not to deal further with bank charges complaints until the outcome of the Office of Fair Trading's "test case" made the law clearer. This letter is to tell you what happened during the legal case, and to let you know why it now looks as though we will be unable to help you with your complaint.

Put simply, during the course of the legal "test case" the Courts ruled that these sorts of charges:
1. did not generally amount to penalties; and
2. cannot be challenged on the grounds they are too high.
This means the the Office of Fair Trading lost it's case. The legal action ended in a decision by the Supreme Court - the highest court in the United Kingdom - on 25 November 2009. The decision, and a summary of it, can be found on the Court's website (at www.supremecourt.gov.uk)

In the light of these decisions by the Courts, and the information you have already provided I do not consider that the Ombudsman could uphold your complaint, and so I propose to close our file on your case.

However, if there are individual factors or circumstances particular to you - or to the way your bank operated your account at the time the charges were made - which you feel should be taken into account, then please write and let me know by 31st December 2009 (dates vary), so we can assess whether they are likely to make a difference.

There is more information about our approach to complaints about bank charges on our website (at www.financial-ombudsman.org.uk/faq/bank-charges.html).
Yours sincerely''


We believe claimants can respond to the Financial Ombudsman asking them to continue with their complaints. We also believe claimants will be able to take their cases to court without any prejudice from the FOS decision not to pursue your complaint.

We will be speaking again to the Financial Ombudsman on Monday and, although we will wait until after the OFT announcement on Tuesday morning, will post up advice on the next steps as soon as possible.

[EXC]

Re: Financial Ombudsman rejecting complaints on Bank Charges

This is a final rejection letter from the FOS that has been made in response to the new arguments that we helped a claimant with.

In my view I don't think they've quite understood the meaning of UTCCR 5.1 - that it relates to the fairness of the overall contractual balance as opposed to the charges in isolation.

Disappointingly on CCA 140 they say that it would be more appropriate for a court to decide.

I think they would have taken misrepresentation more seriously if evidence had been provided.

************************************************** **************************

Final Decision – Dated 22 January 2010

I am writing to tell you that we have now completed our review of your complaint. I enclose the Ombudsman’s decision, a copy of which has also been sent to Lloyds TSB.

I am sorry to say that the ombudsman has not upheld your complaint. Under the rules of our scheme, I now have to:
·Ask you to let me know, in writing, before 22 February 2010, if the decision is accepted or rejected; and
·Explain that if the decision is accepted, then it will become binding on you and on Lloyds TSB.

Since the ombudsman has not upheld the complaint, I understand that you may not wish to accept the decision. In that case, you will not be bound by it.

This completes the investigation of your complaint by the Financial Ombudsman Service. Our complaints-handling procedure has now come to an end, so I hope you will understand that we are unable to enter into any further correspondence about this matter.

Yours sincerely

Jonathon Downes
Ombudsman Assistant






This Final Decision is issued by me, Michael Ingram, an ombudsman with the Financial Ombudsman Service. It sets out my conclusions on the dispute between Miss xxx and Lloyds TSB Bank plc. Under the rules of the Financial Ombudsman service, I am required to ask Miss xxx either to accept or reject my conclusions, in writing, before 22 February 2010.

I have considered all the available evidence and arguments from the outset, in order to decide what is fair and reasonable in the circumstances of this complaint.

Summary of complaint

Miss xxx complains that Lloyds TSB has treated her unfairly by applying unauthorised overdraft charges to her current account between 2001 and 2007.

Background to Complaint

Between 2001 and 2007 Miss xxx incurred a number of unauthorised overdraft charges on her Lloyds TSB current account. In early 2007 she complained to the bank that the charges were unfair and disproportionate to the bank’s costs, citing the Unfair Terms in Consumer Contracts Regulations 1999 (“the Regulations”). The bank rejected her complaint and she complained to us in July 2007.

Shortly afterwards the Office of Fair Trading brought a “test case” in the High Court. The issues which the Court had to consider in that case were very similar to those which were relevant to our consideration of Miss xxx’s complaint (and those of other consumers who had brought similar complaints). So, we decided it would be sensible not to decide these complaints until the outcome of the “test case” made the law clearer.

The “test case” concluded on 25 November 2009 with a decision by the Supreme Court – the highest Court in the United Kingdom. In simple terms, during the course of the legal “test case” the Courts ruled that these sorts of charges:

-Did not generally amount to penalties; and
-Cannot be challenged on the grounds they are too high.

This meant that the Office of Fair Trading lost its case. The Office of Fair Trading has since stated that, having regard to the low potential chance of success of any alternative legal challenge it could make, it does not intend to take any new action through the courts on this issue.

One of our adjudicators wrote to Miss xxx on 11 December 2009 explaining that – on the basis of what Miss xxx had told us, and given the court decision – she did not consider that the ombudsman could uphold the complaint. The adjudicator invited Miss xxx to tell us whether there were any circumstances particular to her which she felt we should take into account, which might make a difference.

Miss xxx replied by letter dated 23 December 2009. She did not provide any further information about her particular circumstances, but put forward a number of legal arguments, which I summarise:

-The charges are unfair under regulation 5(1) of the Regulations.
-The bank misrepresented the nature of the charges or was aware of her mistaken belief as to their nature.
-Lloyds TSB is guilty of anti-competitive behaviour contrary to the Competition Act 1998.
-The special nature of the banker/customer relationship, combined with the fact that the charges are manifestly to the customer’s disadvantage, mean that the charges are the result of undue influence.
-There was an “unfair relationship” within the meaning of sections 140A and 140B of the Consumer Credit Act 1974.

Lloyds TSB had nothing further to add.


My Findings

I have considered the arguments and evidence provided by Miss xxx and by Lloyds TSB, to decide what is fair and reasonable in this case. I have also taken account (as I am required to do so by the rules of the ombudsman service) of the law, relevant regulations, relevant industry codes and good practice.

To help keep the reasons for my decision clear, I shall consider separately each of the legal points and arguments raised by Miss xxx.

Unfairness under regulation 5(1)

The effect of the Regulations on current account charges of this type was considered at some length in the “test case”. There is no dispute that the bank’s current account terms are subject to the Regulations. I summarise those Regulations which are relevant to this complaint:

-A term which is “unfair” is not binding on the consumer [regulation 8(1)].
-Regulation 5(1) explains what is meant by “unfair”.
-Regulation 6(2) precludes a challenge under regulation 5(1) on the basis of price or remuneration.
-Schedule 2 includes an indicative and non-exhaustive list of the types of term which might be regarded as “unfair”

Miss xxx says that the Regulations were not intended to cover personal current accounts and that the intention of regulation 6(2) cannot have been to preclude an assessment of fairness as to price under regulation 5(1). She also says that regulation 6(2) must have been intended as a stand-alone provision in respect of a number of limited issues.

But the Supreme Court was satisfied that the Regulations do cover personal current accounts and that regulation 6(2) does preclude an assessment of fairness on the basis of price. So I cannot see any reasonable basis on which I could accept Miss xxx’s arguments on these points.

Although Miss xxx believes that the Regulations should not apply to current accounts, she nevertheless argues that schedule 2 paragraph 1(e) of the Regulations works in her favour.

Paragraph 1(e) says that a term which requires a consumer who fails to fulfil his obligation to pay a disproportionately high sum in compensation may be “unfair”. However, in the course of the “test case” the courts said, broadly, that these types of charges were not incurred as a result of a breach of contract on the part of the consumers. That is one of the reasons why these charges could not generally amount to penalties.

The Courts also concluded that default charges were part of the price for a package of services. In the light of those legal findings, it does not appear open to Miss xxx successfully to argue that the charges she paid constituted payment of “compensation” to Lloyds TSB or that they were a consequence or her failing to fulfil an obligation she owed to the bank.

Miss xxx’s arguments about the Regulations are, essentially, that the Supreme Court’s judgment was wrong. But the Supreme Court is the highest in the United Kingdom, and so its legal decisions in this matter form the law.

Misrepresentation

Miss xxx appears to be saying that Lloyds TSB disguised valid service charges as unenforceable penalty charges, which she wrongly believed she could recover. However, she does not cite any specific representation made to her about her account or about the charges she has incurred; nor does she explain what, if anything, she did in reliance on any such representation. So I do not see that this argument could succeed.



Competition

Miss xxx argues that Lloyds TSB’s conduct amounts to an abuse of its dominant position, contrary to section 18 of the Competition Act 1998. The ombudsman service has power to determine disputes between consumers and their financial services providers, but does not have any standing (under the Competition Act 1998, or under any other legislation) to regulate or supervise markets.

It follows that we could not carry out an investigation into an allegation of market abuse. Even if the Ombudsman service had such powers (which it does not) it is difficult to see how any finding on competition issues would result in a charges refund to an individual consumer like Miss xxx.

Undue Influence

Miss xxx argues, in summary, that the relationship between banker and customer goes beyond the bare contractual terms of the account and is determined also by the level of trust, confidence and reliance that the customer places in the bank. In her view, customers who incur charges of this type are more likely to be vulnerable, particularly if they are also indebted to the bank or if they do not understand how the complex charging structure would operate on their account.

She considers that transactions for charges of this type are manifestly to the consumer’s disadvantage, and so are entered into by the customer because of the bank’s undue influence.

I cannot see, however, either that Miss xxx did not understand the charging structure that applied to her account or that the charges on her account resulted from undue influence on the part of Lloyds TSB. I do not consider that the relevant case law in this area assists Miss xxx’s complaint, and she appears to be inviting me to extend the legal principles established in the cases far beyond their normal and accepted application.

Unfair relationship

Section 140A of the Consumer Credit Act 1974 gives the courts discretion to decide that the relationship between a lender and a borrower is unfair to the borrower. If a court decides that there is an unfair relationship, it can order an appropriate remedy. But section 140A does not give any comparable power to the ombudsman – so this argument would be more appropriate for a court.

My Decision

Miss xxx has provided no new or additional information about her individual circumstances. Given the legal decisions reached by the Courts during the “test case”, I do not find that the additional general legal arguments Miss xxx has put forward enable me to uphold her claim for a refund of her bank charges.

My Final Decision is that I do not uphold Miss xxx’s complaint.

Michael Ingram
Ombudsman

[Sapphire]

Re: Financial Ombudsman rejecting complaints on Bank Charges

Can this be appealed ?

[EXC]

Re: Financial Ombudsman rejecting complaints on Bank Charges

The claimant has until 22 Feb to accept or reject the decision. But I'm not sure how the appeals process kicks in.

I find it very odd that the FOS describe the charges as ''default charges'' (especially in the context of saying that no breach of contract occurs) when the courts clearly ruled that they were not default charges.

[natweststaffmember]

Re: Financial Ombudsman rejecting complaints on Bank Charges

There was a couple of points there that didn't sit right with me since the Judgement itself gave Regulation 5(1) prominence in paragraph 80(I believe) of the judgement.

[Sapphire]

Re: Financial Ombudsman rejecting complaints on Bank Charges

The claimant has until 22 Feb to accept or reject the decision. But I'm not sure how the appeals process kicks in.

I find it very odd that the FOS describe the charges as ''default charges'' (especially in the context of saying that no breach of contract occurs) when the courts clearly ruled that they were not default charges.

Perhaps that point could be argued then, I'd like to see them worm their way out of that one.

[EXC]

Re: Financial Ombudsman rejecting complaints on Bank Charges

The way I see it is that it appears they don't truly understand how the charges stand in law. The Supreme Court judgment is clear that they are not default charges and they simply cannot read the judgment properly and form a different conclusion and at the same time use other aspects of the judgment as a basis for not upholding the complaint.

It's ironic that they didn't uphold the misrepresentation element of the complaint if they still believe the charges are defaults. In fact they misrepresented that part of the complaint by claiming that ''Miss xxx appears to be saying that Lloyds TSB disguised valid service charges as unenforceable penalty charges, which she wrongly believed she could recover.''

But that's not what the complaint said at all - it said:

''I believe Lloyds charges apply to the Misrepresentation Act 1967 or, at common law, as a unilateral mistake from which the banks knowingly benefited. Historically either; Lloyds misrepresented that their relevant terms were penal as opposed to contracting to provide services, or they were aware of their my 'mistaken belief' that their relevant terms were penal but failed to correct this, to my detriment of the but to the benefit of Lloyds, or Lloyds 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, I 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 £35 and simply a deceitful description.

[ed.]

Re: Financial Ombudsman rejecting complaints on Bank Charges

Personally I'm not quite sure if Mr Ingram understand any of it.

I'm yet to find anything that stops the FOS from investigating CCA matters. In fact the 06 Act introduced a right of appeal for consumer credit licenses to be handled by the financial ombudsman so why this bloke thinks they have no powers under a specific section as a standalone is beyond me.

Especially as the FOS will ignore the law whenever it suits them and ignore precedent and caselaw, quite why he feels the need to not make a fairness ruling under a consumer legislation that deals with fairness alone.....well....

I would think this needs to be appealed with heavy emphasis on charge notifications for misrep etc.

[EXC]

Re: Financial Ombudsman rejecting complaints on Bank Charges

I don't think there is an appeals procedure as the decision of one adjudicator cannot be overturned by another. All the claimant can do is reject it.

[Amethyst]

Re: Financial Ombudsman rejecting complaints on Bank Charges

The Financial Services Ombudsman
One of the most significant changes for lenders is that all customers of consumer credit licence holder will have access, free of charge, to an Alternative Dispute Mechanism in the form of the Financial Services Ombudsman (FOS). FOS will have jurisdiction over any act or omission by a consumer credit licensee in the course of a licensed business.

To date, only customers of FSA-regulated lenders have been able to go to FOS, and there have been relatively few consumer credit cases. However, this may change when consumers are able to take claims of unfair relationships to FOS under the new regime. While only a court may make an order under the new section 140B (the powers of the court in relation to unfair relationships) FOS has significant powers of redress. Particularly as it is not bound by legal precedent, as confirmed in the recent case of IFG Financial Services Limited v Financial Ombudsman Services Ltd [2005]. Here, the High Court held that the relevant law was only one of a number of factors which FOS is required to consider in reaching a decision and that FOS may legitimately ‘depart from the result mandated by the law if he considered that another result provided the result that was fair and reasonable in the circumstances.’


contrasts with

Unfair relationship

Section 140A of the Consumer Credit Act 1974 gives the courts discretion to decide that the relationship between a lender and a borrower is unfair to the borrower. If a court decides that there is an unfair relationship, it can order an appropriate remedy. But section 140A does not give any comparable power to the ombudsman – so this argument would be more appropriate for a court.

[MIKE770]

Re: Financial Ombudsman rejecting complaints on Bank Charges

The way I see it is that it appears they don't truly understand how the charges stand in law. The Supreme Court judgment is clear that they are not default charges and they simply cannot read the judgment properly and form a different conclusion and at the same time use other aspects of the judgment as a basis for not upholding the complaint.

It's ironic that they didn't uphold the misrepresentation element of the complaint if they still believe the charges are defaults. In fact they misrepresented that part of the complaint by claiming that ''Miss xxx appears to be saying that Lloyds TSB disguised valid service charges as unenforceable penalty charges, which she wrongly believed she could recover.''

But that's not what the complaint said at all - it said:

''I believe Lloyds charges apply to the Misrepresentation Act 1967 or, at common law, as a unilateral mistake from which the banks knowingly benefited. Historically either; Lloyds misrepresented that their relevant terms were penal as opposed to contracting to provide services, or they were aware of their my 'mistaken belief' that their relevant terms were penal but failed to correct this, to my detriment of the but to the benefit of Lloyds, or Lloyds 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, I 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 £35 and simply a deceitful description.

Thanks Exc: - I have intigrated Paras above into complaint notification.