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Dear Mr Smith,
We refer to your further letter regarding your complaint relating to unarranged overdraft charges. We note that your complaint appears to be based on a template. We consider your complaint to be about the level and, accordingly, the fairness or lawfulness of these charges.
We are authorised and regulated by the FSA and are subject to routine monitoring by the FSA and work closely with them to ensure we adhere to all of the FSA's Principles.
Your further letter raises a number of arguments. We do not accept that any of these arguments, whether taken together or individually, could give rise to a finding that our unarranged overdraft charges are or were unfair or otherwise unlawful. We respond to your arguments individually below.
Your complaint now alleges that the level of the unarranged overdraft charges can still bechallenged under Regulation 5(1) of the UTCCRs on the grounds that the Supreme Court judgment considered a separate regulation, namely Regulation 6(2). This is a misunderstanding of the judgment and the UTCCRs.
Regulation 5(1) sets out the basis on which terms within a contract may be assessed for fairness under the UTCCRs. Regulation 6(2) sets out exceptions to it. The Supreme Court found that Regulation 6(2) prevented the level of unarranged overdraft charges from being assessed for fairness under Regulation 5(1), in so far as the relevant terms are plain and intelligible. Given that your challenge is essentially that the unarranged overdraft charges are too high, your complaint is directly affected by the Supreme Court's judgment.
Your complaint further alleges that the level of the charges gives rise to an unfair relationship under section 140A of the Consumer Credit Act 1974("CCA"). In our view, this argument proceeds on a false premise. The Supreme Court ruled that the charges are part of the price for the current account package as a whole. Under the CCA, therefore, as under the UTCCRs, the level of the charges must be assessed against all of the benefits which can be, or are, received under the current account contract. On this basis, our view is that the relationship, including the unarranged overdraft charges, is notunfair under section 140A. It is notable that the OFT also indicated in its December 2009 statement that a generic section 140A challenge would not have good prospects of success. Your complaint discloses nothing which would alter your prospects from those as assessed by the OFT.
Your complaint further alleges that the application of unarranged overdraft charges creates an unfair cross-subsidy between those customers who pay these charges and
those who do not.
We do not consider that your argument is capable of justifying the conclusion that the charging terms give rise to a significant imbalance, to the detriment of the customer. As the OFT concluded, in its December 2009 statement, the allegation of cross subsidy has little prospect of success because it is not based on relevant considerations. The relevant approach is to assess the rights and obligations of the parties to the contract. The comparison is not between the bank and the whole body of its customers or between different groups of customers. The potential for some customers to pay more and others less is also clear on the face of the contract, and is the same for all customers when they enter into the contract; it is the manner in which the customer operates the account that determines how much is paid.
Your cross-subsidy argument is also precluded by Regulation 6(2)(b) of the UTCCRs, which exempts the level of the price paid by customers, in exchange for services supplied, from being assessed for fairness under Regulation 5. Your argument amounts to an allegation that, for the customers who pay the charges, they are too high in relation to the banking services supplied. However, the Supreme Court has ruled that current account customers receive a package of services and unarranged overdraft charges are part of the price paid by customers in exchange for that package. Accordingly, since your argument is about the level of the price, as against the services supplied, it is precluded by Regulation 6(2)(b), in so far as the relevant terms are plain and intelligible.
In addition, we do not consider that your argument is capable of justifying a finding of unfairness under section 140A of the CCA. The test of fairness under section 140A involves an assessment of the fairness of the relationship in each individual case. The issue of cross-subsidy therefore does not arise.
Your complaint further alleges that charges are designed to multiply or to force customers into a cycle of debt. In our view this challenge relates to the level of the charges and is therefore precluded by the Supreme Court judgment.
In any event, the relevant terms are similar to terms found to be in plain and intelligible language by the High Court, and therefore we do not accept that they can trap customersin any way. By finding our charging terms to be plain and intelligible, the High Court found that they were "sufficiently clear to enable the typical customer to have a proper understanding of them for sensible and practical purposes." Further, our notification services provide customers with the information they need to avoid repeat charges. We therefore do not accept that this argument can result in a finding of unfairness.
Your complaint further alleges that the terms relating to unarranged overdraft charges are incomprehensible, and that this is unfair. We consider that this argument must fail, because terms similar to those about which you are complaining were found by the High Court to be in plain and intelligible language. In particular, the High Court accepted that a detailed explanation of the complex procedures required to operate a current account did not need to be made to customers, might detract from the information customers needed to know and would in any event not allow customers to know precisely how much money is in their account at any time, given uncertainties not within the bank's control such as when third parties (such as retailers) present transactions for payment. By finding our charging terms to be plain and intelligible, the High Court found that they were "sufficiently clear to enable the typical customer to have a proper understanding of them for sensible and practical purposes."
Your complaint further alleges that we concluded the contract with you in bad faith. We maintain that in all of our dealings with our customers, we act in good faith.
Your complaint further alleges that there is a lack of competition in the personal current account market. The OFT noted in its own report that it has found evidence of competition in the personal current account market and that banks can also demonstrate high consumer satisfaction. We do not therefore agree with you that there is no competition in the market. Irrespective of this point, however, we do not accept that any lack of competition could mean, of itself, that unarranged overdraft charges were unfair. Competition issues are regulated by the competition authorities, and are not an appropriate ground for the bringing of unfairness claims under consumer legislation.
Your complaint further alleges that the charges were excessive in comparison with the level of borrowing which triggered the levying of the charges. In our view this challenge relates to the level of the charges and is therefore precluded by the Supreme Court judgment.
In any event this argument overlooks two important issues. The first is that the costs of unarranged overdraft services are largely independent of the size of the overdraft. The second is that it is clear from the Supreme Court judgment that this comparison proceeds on a false premise. Given that the unarranged overdraft charges are part of the price for the personal current account package as a whole, they should be assessed as against all of the services available under that package, rather than being treated as payments made in exchange for the provision of credit on particular occasions.
In light of the above, we are satisfied that the charges you seek to reclaim were properly charged and the outcome of the legal proceedings confirms our position. We are therefore not upholding your complaint and will not be refunding the unarranged overdraft charges you have complained about. You may consider this to be the Bank's final response.
Should you remain dissatisfied you have the right to refer your complaint to the Financial Ombudsman Service and can do so for six months from the date of this letter. I enclose a copy of their leaflet for your convenience. Before you decide whether or not to take your complaint to the Ombudsman Service, you may find it helpful to consider the information about this subject on the Service's website at:
Please be assured that the Bank will co-operate fully with any review they may choose to undertake.
Yours sincerely,
Dear Mr Smith,
We refer to your further letter regarding your complaint relating to unarranged overdraft charges. We note that your complaint appears to be based on a template. We consider your complaint to be about the level and, accordingly, the fairness or lawfulness of these charges.
We are authorised and regulated by the FSA and are subject to routine monitoring by the FSA and work closely with them to ensure we adhere to all of the FSA's Principles.
Your further letter raises a number of arguments. We do not accept that any of these arguments, whether taken together or individually, could give rise to a finding that our unarranged overdraft charges are or were unfair or otherwise unlawful. We respond to your arguments individually below.
Your complaint now alleges that the level of the unarranged overdraft charges can still bechallenged under Regulation 5(1) of the UTCCRs on the grounds that the Supreme Court judgment considered a separate regulation, namely Regulation 6(2). This is a misunderstanding of the judgment and the UTCCRs.
Regulation 5(1) sets out the basis on which terms within a contract may be assessed for fairness under the UTCCRs. Regulation 6(2) sets out exceptions to it. The Supreme Court found that Regulation 6(2) prevented the level of unarranged overdraft charges from being assessed for fairness under Regulation 5(1), in so far as the relevant terms are plain and intelligible. Given that your challenge is essentially that the unarranged overdraft charges are too high, your complaint is directly affected by the Supreme Court's judgment.
Your complaint further alleges that the level of the charges gives rise to an unfair relationship under section 140A of the Consumer Credit Act 1974("CCA"). In our view, this argument proceeds on a false premise. The Supreme Court ruled that the charges are part of the price for the current account package as a whole. Under the CCA, therefore, as under the UTCCRs, the level of the charges must be assessed against all of the benefits which can be, or are, received under the current account contract. On this basis, our view is that the relationship, including the unarranged overdraft charges, is notunfair under section 140A. It is notable that the OFT also indicated in its December 2009 statement that a generic section 140A challenge would not have good prospects of success. Your complaint discloses nothing which would alter your prospects from those as assessed by the OFT.
Your complaint further alleges that the application of unarranged overdraft charges creates an unfair cross-subsidy between those customers who pay these charges and
those who do not.
We do not consider that your argument is capable of justifying the conclusion that the charging terms give rise to a significant imbalance, to the detriment of the customer. As the OFT concluded, in its December 2009 statement, the allegation of cross subsidy has little prospect of success because it is not based on relevant considerations. The relevant approach is to assess the rights and obligations of the parties to the contract. The comparison is not between the bank and the whole body of its customers or between different groups of customers. The potential for some customers to pay more and others less is also clear on the face of the contract, and is the same for all customers when they enter into the contract; it is the manner in which the customer operates the account that determines how much is paid.
Your cross-subsidy argument is also precluded by Regulation 6(2)(b) of the UTCCRs, which exempts the level of the price paid by customers, in exchange for services supplied, from being assessed for fairness under Regulation 5. Your argument amounts to an allegation that, for the customers who pay the charges, they are too high in relation to the banking services supplied. However, the Supreme Court has ruled that current account customers receive a package of services and unarranged overdraft charges are part of the price paid by customers in exchange for that package. Accordingly, since your argument is about the level of the price, as against the services supplied, it is precluded by Regulation 6(2)(b), in so far as the relevant terms are plain and intelligible.
In addition, we do not consider that your argument is capable of justifying a finding of unfairness under section 140A of the CCA. The test of fairness under section 140A involves an assessment of the fairness of the relationship in each individual case. The issue of cross-subsidy therefore does not arise.
Your complaint further alleges that charges are designed to multiply or to force customers into a cycle of debt. In our view this challenge relates to the level of the charges and is therefore precluded by the Supreme Court judgment.
In any event, the relevant terms are similar to terms found to be in plain and intelligible language by the High Court, and therefore we do not accept that they can trap customersin any way. By finding our charging terms to be plain and intelligible, the High Court found that they were "sufficiently clear to enable the typical customer to have a proper understanding of them for sensible and practical purposes." Further, our notification services provide customers with the information they need to avoid repeat charges. We therefore do not accept that this argument can result in a finding of unfairness.
Your complaint further alleges that the terms relating to unarranged overdraft charges are incomprehensible, and that this is unfair. We consider that this argument must fail, because terms similar to those about which you are complaining were found by the High Court to be in plain and intelligible language. In particular, the High Court accepted that a detailed explanation of the complex procedures required to operate a current account did not need to be made to customers, might detract from the information customers needed to know and would in any event not allow customers to know precisely how much money is in their account at any time, given uncertainties not within the bank's control such as when third parties (such as retailers) present transactions for payment. By finding our charging terms to be plain and intelligible, the High Court found that they were "sufficiently clear to enable the typical customer to have a proper understanding of them for sensible and practical purposes."
Your complaint further alleges that we concluded the contract with you in bad faith. We maintain that in all of our dealings with our customers, we act in good faith.
Your complaint further alleges that there is a lack of competition in the personal current account market. The OFT noted in its own report that it has found evidence of competition in the personal current account market and that banks can also demonstrate high consumer satisfaction. We do not therefore agree with you that there is no competition in the market. Irrespective of this point, however, we do not accept that any lack of competition could mean, of itself, that unarranged overdraft charges were unfair. Competition issues are regulated by the competition authorities, and are not an appropriate ground for the bringing of unfairness claims under consumer legislation.
Your complaint further alleges that the charges were excessive in comparison with the level of borrowing which triggered the levying of the charges. In our view this challenge relates to the level of the charges and is therefore precluded by the Supreme Court judgment.
In any event this argument overlooks two important issues. The first is that the costs of unarranged overdraft services are largely independent of the size of the overdraft. The second is that it is clear from the Supreme Court judgment that this comparison proceeds on a false premise. Given that the unarranged overdraft charges are part of the price for the personal current account package as a whole, they should be assessed as against all of the services available under that package, rather than being treated as payments made in exchange for the provision of credit on particular occasions.
In light of the above, we are satisfied that the charges you seek to reclaim were properly charged and the outcome of the legal proceedings confirms our position. We are therefore not upholding your complaint and will not be refunding the unarranged overdraft charges you have complained about. You may consider this to be the Bank's final response.
Should you remain dissatisfied you have the right to refer your complaint to the Financial Ombudsman Service and can do so for six months from the date of this letter. I enclose a copy of their leaflet for your convenience. Before you decide whether or not to take your complaint to the Ombudsman Service, you may find it helpful to consider the information about this subject on the Service's website at:
Please be assured that the Bank will co-operate fully with any review they may choose to undertake.
Yours sincerely,
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