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Banks to appeal against overdraft judgment
By Megan Murphy, Law Courts Correspondent
Published: May 21 2008 03:00 | Last updated: May 21 2008 03:00
Britain's largest retail banks are to appeal against a court ruling on overdraft charges in a move that could delay resolution of the closely watched case.
Hundreds of thousands of consumers have sought refunds of fees charged for unauthorised overdraftsor bounced cheques.
Tomorrow eight high street lenders, including HSBC, Barclays and the Royal Bank of Scotland, will seek permission to appeal against a High Court judgment that the charges are subject to unfair consumer contract regulations.
The issue, while technical, is at the core of efforts by consumers to reclaim billions in overdraft and other fees. So-called "unpaid item" fees have ranged as high as £38 per transaction.
If the charges are deemed to be subject to consumer regulations, the Office of Fair Trading would have the authority to cap the fees at a much lower level.
Analysts say this could cost the banks £10bn in lost revenue, potentially forcing them to impose surcharges on services such as ATM withdrawals and cheque-cashing to make up the shortfall.
The OFT is not expected to contest the banks' application to appeal against the High Court ruling, according to sources close to the litigation. It is also thought to be unlikely that Mr Justice Andrew Smith, who handed down the original judgment in April, will refuse permission, given the significance of the legal principles at stake.
Individual compensation claims will remain on hold under an earlier agreement with the Financial Services Authority.
The OFT, which brought the test case in response to a deluge of consumer complaints, has yet to announce whether it believes the current level of overdraft charges is unfair, or what a "fairer" amount would be.
However, observers have pointed to the regulator's decision to cap the fees levied on late credit card payments at £12 in 2006 as indicative of its view on the appropriate level of charges.
Consumer groups have consistently argued that overdraft fees are misleading, arbitrary and much higher than the cost of processing the transactions.
The banking industry claims that the charges are a legitimate payment for services rendered, such as notifying customers of unpaid debits and taking the credit risk of granting an unauthorised overdraft.
Mr Justice Smith is also expected to set a date for further hearing on whether some historic overdraft terms not dealt with in his first judgment can be classified as unlawful "penalty" charges.
Copyright The Financial Times Limited 2008
Banks appeal against overdraft judgment
By Megan Murphy, Law Courts Correspondent
Published: May 20 2008 22:52 | Last updated: May 20 2008 22:52
Britain’s largest retail banks are to appeal against a court ruling on overdraft charges in a move that could delay resolution of the closely watched case.
Hundreds of thousands of consumers have sought refunds of fees charged for unauthorised overdrafts or bounced cheques.
On Thursday, eight high street lenders, including HSBC, Barclays and the Royal Bank of Scotland, will seek permission to appeal against a High Court judgment that the charges are subject to unfair consumer contract regulations.
The issue, while technical, is at the core of efforts by consumers to reclaim billions in overdraft and other fees. So-called “unpaid item” fees have ranged as high as £38 per transaction.
If the charges are deemed to be subject to consumer regulations, the Office of Fair Trading would have the authority to cap the fees at a much lower level.
Analysts say this could cost the banks £10bn in lost revenue, potentially forcing them to impose surcharges on services such as ATM withdrawals and cheque-cashing to make up the shortfall.
The OFT is not expected to contest the banks’ application to appeal against the High Court ruling, according to sources close to the litigation. It is also thought to be unlikely that Mr Justice Andrew Smith, who handed down the original judgment in April, will refuse permission, given the significance of the legal principles at stake.
Individual compensation claims will remain on hold under an earlier agreement with the Financial Services Authority.
T
he OFT, which brought the test case in response to a deluge of consumer complaints, has yet to announce whether it believes the current level of overdraft charges is unfair, or what a “fairer” amount would be.
However, observers have pointed to the regulator’s decision to cap the fees levied on late credit card payments at £12 in 2006 as indicative of its view on the appropriate level of charges.
Consumer groups have consistently argued that overdraft fees are misleading, arbitrary and much higher than the cost of processing the transactions.
The banking industry claims that the charges are a legitimate payment for services rendered, such as notifying customers of unpaid debits and taking the credit risk of granting an unauthorised overdraft.
Mr Justice Smith is also expected to set a date for further hearing on whether some historic overdraft terms not dealt with in his first judgment can be classified as unlawful “penalty” charges.
Copyright The Financial Times Limited 2008
Banks make customers pay for lost profit
By Sharlene Goff
Published: May 16 2008 23:05 | Last updated: May 16 2008 23:05
People are having to pay significantly more for everyday banking services than they were a month ago as providers ramp up the cost of credit and cut the interest paid by current accounts.
Since the quarter-point cut in the base rate last month, many of the largest banks have pushed through far greater cuts for account holders, while charging more for overdrafts, mortgages and credit cards.
Halifax customers suffered a double hit early this month when the bank cut the rate on its high-interest account by a full percentage point, while raising the overdraft rate by 60 basis points.
Alliance & Leicester and HSBC have cut the rates on their premier accounts by up to half a point, while Natwest and the Royal Bank of Scotland have increased overdraft rates, says the Moneyfacts.co.uk website.
Next month, Nationwide current-account holders face a more drastic cut when the bank slashes its credit interest rate from 3.75 to 2 per cent and increases overdraft rates by 3 percentage points.These changes are an extra blow for people already struggling with rapidly rising mortgage rates and other living expenses, such as food and utility bills. Mortgage rates are at their highest for some years and could rise further now that early base-rate cuts look doubtful.
“A large proportion of the population are going to be hit at a time when they can least afford it,” said Michelle Slade, an analyst at Moneyfacts. “Banks are trying to keep margins up and the effects are now spreading further than higher mortgage rates into other areas.”
Banks have seen their profit margins squeezed by the credit crunch, as it has become more expensive for them to access funds. They are also concerned that the Office of Fair Trading could impose a cap on penalty fees charged when a customer exceeds an overdraft limit or bounces a cheque.
A £12 cap was applied to credit-card charges two years ago. Since then, the average purchase rate on cards has jumped from 14.9 per cent to 16.4 per cent, according to Moneyfacts.
The recent spate of increases in overdraft rates could be a pre-emptive move by lenders to mitigate any similar cap on current-account fees.
“Banks are now being creative on how they can claw back some margin,” said Kevin Mountford, head of savings and current accounts at the Moneysupermarket.com site.
“Certain tactics are in play across all product sets, which collectively add a lot to the bottom line – and hits the consumer’s pocket.”
Lloyds TSB, Natwest and RBS have also recently increased the monthly fees on their packaged current accounts, in some instances by up to 20 per cent. These accounts typically cost between £7 and £20 per month and provide extra benefits such as worldwide travel insurance, breakdown services and some personal concierge services.
High Court ruling adds to banks' woes
By Megan Murphy, Law Courts Correspondent
Published: April 25 2008 03:00 | Last updated: April 25 2008 03:00
The retail banking industry, already straining under the credit crunch and heavy projected write-downs, was dealt a potentially billion-pound blow yesterday by a long-awaited judgment on overdraft charges.
The High Court ruled that the contentious fees, which are levied when a consumer exceeds their current account balance or bounces a cheque, are subject to regulations governing unfair contracts.
While just the first round of a potentially bruising legal battle, the decision paves the way for the Office of Fair Trading to force banks to cut charges - which have ranged as high as £38 per transaction - if the court later determines that current fees are too high.
Tens of thousands of consumers have already sought to reclaim overdraft and so-called "unpaid item'' fees in a near-unprecedented outcry, labelling them excessive, misleading and unfair.
Martin Lewis of Moneysavingexpert.com, one of the main campaigners against the charges, said: "This is a real victory for bank charge reclaimers. Banks currently charge £35 for what is an automated letter printed off the computer."
Facing a deluge of complaints in the county courts, banks paid out more than £700m to disgruntled customers before the OFT and eight high street lenders
agreed to bring yesterday's test case.
The legal battle now shifts to the thornier issue of whether overdraft charges actually are unfair, and if so, what a "fairer" level of charge would be.
Individual consumer complaints will remain on hold under an earlier agreement with the Financial Services Authority.
The banks are also expected to appeal parts of the judgment, lawyers said, potentially further delaying a final resolution for consumers.
A hearing has been set for next month to determine the next steps in the case.
Looking beyond the legal process, the judgment represents a stunning 24-hour turnround for the OFT.
On Wednesday, the regulator was forced to issue a humiliating apology to Wm Morrison, the supermarket chain, after publishing a series of false allegations involving the OFT's investigation into a massive cartel on dairy products. Besieged by criticism from business leaders for its increasingly aggressive approach toward populist areas such as bank charges and supermarket pricing, the High Court ruling will serve as a vital boost for John Fingleton, the agency's chief executive.
As it is, the OFT lost on two of the three main issues - the court rejected the OFT's case that overdraft charges are penalties, drafted in unintelligible, misleading language.
A verdict that the fees were also not subject to regulations governing unfair consumer contracts would have blocked tens of thousands of customers from claiming refunds, triggering widespread criticism of the OFT's intervention.
The regulator said it is still not expecting to conclude its own investigation into the fairness of overdraft fees, which it has been pursuing since last April, for several months.
The OFT is widely expected to conclude that the current level of overdraft charges is too high and should be capped.
Copyright The Financial Times Limited 2008
By Megan Murphy, Law Courts Correspondent
Published: May 21 2008 03:00 | Last updated: May 21 2008 03:00
Britain's largest retail banks are to appeal against a court ruling on overdraft charges in a move that could delay resolution of the closely watched case.
Hundreds of thousands of consumers have sought refunds of fees charged for unauthorised overdraftsor bounced cheques.
Tomorrow eight high street lenders, including HSBC, Barclays and the Royal Bank of Scotland, will seek permission to appeal against a High Court judgment that the charges are subject to unfair consumer contract regulations.
The issue, while technical, is at the core of efforts by consumers to reclaim billions in overdraft and other fees. So-called "unpaid item" fees have ranged as high as £38 per transaction.
If the charges are deemed to be subject to consumer regulations, the Office of Fair Trading would have the authority to cap the fees at a much lower level.
Analysts say this could cost the banks £10bn in lost revenue, potentially forcing them to impose surcharges on services such as ATM withdrawals and cheque-cashing to make up the shortfall.
The OFT is not expected to contest the banks' application to appeal against the High Court ruling, according to sources close to the litigation. It is also thought to be unlikely that Mr Justice Andrew Smith, who handed down the original judgment in April, will refuse permission, given the significance of the legal principles at stake.
Individual compensation claims will remain on hold under an earlier agreement with the Financial Services Authority.
The OFT, which brought the test case in response to a deluge of consumer complaints, has yet to announce whether it believes the current level of overdraft charges is unfair, or what a "fairer" amount would be.
However, observers have pointed to the regulator's decision to cap the fees levied on late credit card payments at £12 in 2006 as indicative of its view on the appropriate level of charges.
Consumer groups have consistently argued that overdraft fees are misleading, arbitrary and much higher than the cost of processing the transactions.
The banking industry claims that the charges are a legitimate payment for services rendered, such as notifying customers of unpaid debits and taking the credit risk of granting an unauthorised overdraft.
Mr Justice Smith is also expected to set a date for further hearing on whether some historic overdraft terms not dealt with in his first judgment can be classified as unlawful "penalty" charges.
Copyright The Financial Times Limited 2008
Banks appeal against overdraft judgment
By Megan Murphy, Law Courts Correspondent
Published: May 20 2008 22:52 | Last updated: May 20 2008 22:52
Britain’s largest retail banks are to appeal against a court ruling on overdraft charges in a move that could delay resolution of the closely watched case.
Hundreds of thousands of consumers have sought refunds of fees charged for unauthorised overdrafts or bounced cheques.
On Thursday, eight high street lenders, including HSBC, Barclays and the Royal Bank of Scotland, will seek permission to appeal against a High Court judgment that the charges are subject to unfair consumer contract regulations.
The issue, while technical, is at the core of efforts by consumers to reclaim billions in overdraft and other fees. So-called “unpaid item” fees have ranged as high as £38 per transaction.
If the charges are deemed to be subject to consumer regulations, the Office of Fair Trading would have the authority to cap the fees at a much lower level.
Analysts say this could cost the banks £10bn in lost revenue, potentially forcing them to impose surcharges on services such as ATM withdrawals and cheque-cashing to make up the shortfall.
The OFT is not expected to contest the banks’ application to appeal against the High Court ruling, according to sources close to the litigation. It is also thought to be unlikely that Mr Justice Andrew Smith, who handed down the original judgment in April, will refuse permission, given the significance of the legal principles at stake.
Individual compensation claims will remain on hold under an earlier agreement with the Financial Services Authority.
T
he OFT, which brought the test case in response to a deluge of consumer complaints, has yet to announce whether it believes the current level of overdraft charges is unfair, or what a “fairer” amount would be.
However, observers have pointed to the regulator’s decision to cap the fees levied on late credit card payments at £12 in 2006 as indicative of its view on the appropriate level of charges.
Consumer groups have consistently argued that overdraft fees are misleading, arbitrary and much higher than the cost of processing the transactions.
The banking industry claims that the charges are a legitimate payment for services rendered, such as notifying customers of unpaid debits and taking the credit risk of granting an unauthorised overdraft.
Mr Justice Smith is also expected to set a date for further hearing on whether some historic overdraft terms not dealt with in his first judgment can be classified as unlawful “penalty” charges.
Copyright The Financial Times Limited 2008
Banks make customers pay for lost profit
By Sharlene Goff
Published: May 16 2008 23:05 | Last updated: May 16 2008 23:05
People are having to pay significantly more for everyday banking services than they were a month ago as providers ramp up the cost of credit and cut the interest paid by current accounts.
Since the quarter-point cut in the base rate last month, many of the largest banks have pushed through far greater cuts for account holders, while charging more for overdrafts, mortgages and credit cards.
Halifax customers suffered a double hit early this month when the bank cut the rate on its high-interest account by a full percentage point, while raising the overdraft rate by 60 basis points.
Alliance & Leicester and HSBC have cut the rates on their premier accounts by up to half a point, while Natwest and the Royal Bank of Scotland have increased overdraft rates, says the Moneyfacts.co.uk website.
Next month, Nationwide current-account holders face a more drastic cut when the bank slashes its credit interest rate from 3.75 to 2 per cent and increases overdraft rates by 3 percentage points.These changes are an extra blow for people already struggling with rapidly rising mortgage rates and other living expenses, such as food and utility bills. Mortgage rates are at their highest for some years and could rise further now that early base-rate cuts look doubtful.
“A large proportion of the population are going to be hit at a time when they can least afford it,” said Michelle Slade, an analyst at Moneyfacts. “Banks are trying to keep margins up and the effects are now spreading further than higher mortgage rates into other areas.”
Banks have seen their profit margins squeezed by the credit crunch, as it has become more expensive for them to access funds. They are also concerned that the Office of Fair Trading could impose a cap on penalty fees charged when a customer exceeds an overdraft limit or bounces a cheque.
A £12 cap was applied to credit-card charges two years ago. Since then, the average purchase rate on cards has jumped from 14.9 per cent to 16.4 per cent, according to Moneyfacts.
The recent spate of increases in overdraft rates could be a pre-emptive move by lenders to mitigate any similar cap on current-account fees.
“Banks are now being creative on how they can claw back some margin,” said Kevin Mountford, head of savings and current accounts at the Moneysupermarket.com site.
“Certain tactics are in play across all product sets, which collectively add a lot to the bottom line – and hits the consumer’s pocket.”
Lloyds TSB, Natwest and RBS have also recently increased the monthly fees on their packaged current accounts, in some instances by up to 20 per cent. These accounts typically cost between £7 and £20 per month and provide extra benefits such as worldwide travel insurance, breakdown services and some personal concierge services.
High Court ruling adds to banks' woes
By Megan Murphy, Law Courts Correspondent
Published: April 25 2008 03:00 | Last updated: April 25 2008 03:00
The retail banking industry, already straining under the credit crunch and heavy projected write-downs, was dealt a potentially billion-pound blow yesterday by a long-awaited judgment on overdraft charges.
The High Court ruled that the contentious fees, which are levied when a consumer exceeds their current account balance or bounces a cheque, are subject to regulations governing unfair contracts.
While just the first round of a potentially bruising legal battle, the decision paves the way for the Office of Fair Trading to force banks to cut charges - which have ranged as high as £38 per transaction - if the court later determines that current fees are too high.
Tens of thousands of consumers have already sought to reclaim overdraft and so-called "unpaid item'' fees in a near-unprecedented outcry, labelling them excessive, misleading and unfair.
Martin Lewis of Moneysavingexpert.com, one of the main campaigners against the charges, said: "This is a real victory for bank charge reclaimers. Banks currently charge £35 for what is an automated letter printed off the computer."
Facing a deluge of complaints in the county courts, banks paid out more than £700m to disgruntled customers before the OFT and eight high street lenders
agreed to bring yesterday's test case.
The legal battle now shifts to the thornier issue of whether overdraft charges actually are unfair, and if so, what a "fairer" level of charge would be.
Individual consumer complaints will remain on hold under an earlier agreement with the Financial Services Authority.
The banks are also expected to appeal parts of the judgment, lawyers said, potentially further delaying a final resolution for consumers.
A hearing has been set for next month to determine the next steps in the case.
Looking beyond the legal process, the judgment represents a stunning 24-hour turnround for the OFT.
On Wednesday, the regulator was forced to issue a humiliating apology to Wm Morrison, the supermarket chain, after publishing a series of false allegations involving the OFT's investigation into a massive cartel on dairy products. Besieged by criticism from business leaders for its increasingly aggressive approach toward populist areas such as bank charges and supermarket pricing, the High Court ruling will serve as a vital boost for John Fingleton, the agency's chief executive.
As it is, the OFT lost on two of the three main issues - the court rejected the OFT's case that overdraft charges are penalties, drafted in unintelligible, misleading language.
A verdict that the fees were also not subject to regulations governing unfair consumer contracts would have blocked tens of thousands of customers from claiming refunds, triggering widespread criticism of the OFT's intervention.
The regulator said it is still not expecting to conclude its own investigation into the fairness of overdraft fees, which it has been pursuing since last April, for several months.
The OFT is widely expected to conclude that the current level of overdraft charges is too high and should be capped.
Copyright The Financial Times Limited 2008
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