Banks set to appeal OFT charges ruling
The eight law firms which failed in their attempt to prove overdraft charges as fair are set to appeal today’s landmark judgment, TheLawyer.com has learned.
The lawyers will reconvene at a case management conference where they are expected to launch the appeal.
The decision to appeal comes as today’s ruling will give claimants ground upon which to challenge the fairness of the charges.
The OFT argued that overdraft charges were excessive and “penalty charges”; that terms and conditions (T’s & C’s) supplied by the banks were not written in “plain intelligible language”; and that overdraft facilities are not a chargeable service.
Mr Justice Andrew Smith today rejected the banks argument that under the 1999 Unfair Terms in Consumer Contracts Regulations the relevant terms on overdrafts are exempt from assessment as to fairness.
However, he added that this did not mean that the relevant terms should necessarily be regarded as unfair, or “that they are not binding upon consumers”.
On the issue of the bank’s language in T’s & C’s Smith J said four of the eight banks were left wanting in “certain specific and relatively minor aspects”, yet all banks’ T’s & C’s were provided in “largely” plain intelligible language.
The High Court also found in favour of the OFT in its argument that a bank refuses to pay out on a cheque then no service has been given. However, if banks do pay out on a cheque it should be regarded as customer service.
Overdraft charges should not be considered as penalty charges, the High Court added. One source close to the case said this removed the grounds upon which most county court claims against banks had been brought.
The Office of Fair Trading (OFT) initiated the proceedings against the banks, which provided 90 percent of the UK’s current accounts, following a deluge of claims that bank overdraft charges are unfair.
In a statement the OFT said: “It is important to note that this judgment only covers points of legal principle and does not determine whether the relevant charges are actually unfair.
“We are continuing our investigation into the fairness of these terms and will consider our position after reviewing the detail of this judgment.”
The CMC will convene on 22 May to establish what can be regarded as a fair overdraft charge. It is understood that lawyers representing the banks believe there are sufficient grounds upon which to launch an appeal at the CMC.
Who instructed who for who?
The OFT instructed Brian Doctor QC of Fountain Court
Ashurst partner Wilson Thorbury instructed Ali Malek QC of Three Verulum Buildings to represent Abbey National
Simmons & Simmons partner Colin Passmore instructed Iain Milligan QC of 20 Essex Street to represent Barclays Bank
Addleshaw Goddard partner Michael Barnett instructed Richard Salter QC of Three Verulum Buildings to represent Clydesdale Bank
Allen & Overy partner Mark Florent instructed Robin Dicker QC of 3-4 South Square to represent HBOS
Freshfields Bruckhaus Deringer partner Simon Orton instructed Richard Snowden QC of Erskine Chambers to represent HSBC Bank
Lovells partners John Holland and Andrea Monks instructed Bankim Thanki QC of Fountain Court to represent Lloyds TSB Bank
Slaughter & May partner Ewan Brown instructed Geoffrey Vos QC of 3 Stone Buildings to represent Nationwide Building Society
Linklaters partner James Gardner instructed Laurence Rabinowitz QC of One Essex Court to represent The Royal Bank of Scotland Group
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Readers' comments (12)
Steven Friel, Davies Arnold Cooper | 24-Apr-2008 3:48 pm
Bank charges
The decision in the bank charges case has been hailed as a victory by consumer organisations, and to a large extent it is. Although the judge held that the bank charges are not penalties and are therefore not to be struck down under the common law (some small comfort!), he did find that the charges are governed by the fairness requirements of the Unfair Terms in Consumer Contracts Regulations 1999.
It remains possible, therefore, that the charges will eventually be held to be unfair and therefore prohibited by the Regulations. If that were to happen, it would lead to a fundamental change in what we pay for personal banking services.
But the fight is not over. Will the banks appeal? Most probably. This one is likely to go the whole way to the House of Lords, possibly more than once, as there is so much at stake. Indeed, it will be interesting to see how the banks' share prices react in the meantime."
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Ingrid Gubbay, Cohen Milstein | 24-Apr-2008 3:51 pm
Bank charges
The OFT has won a significant point because it has been affirmed as having the power to regulate banks charges under the Unfair Terms in Contracts Regulations.
If the OFT had lost today the regulations would have proved to have been worthless to protect consumers against market abuse and bank customers would have been left vulnerable'.
We hope that the court will shortly decide that the unauthorised overdraft charges are disproportionate and unfair to bank customers.
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Anonymous | 24-Apr-2008 4:38 pm
BANK CHARGES
Despite using 8 "magic circle" firms and 8 QCs the banks find themselves on the losing side. A good day for the man in the street and eventually some form of accountability for our banks.
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Martin Rands | 24-Apr-2008 4:50 pm
Bank Charges
I imagine that the banks' liability to compensate is already discounted in their share prices. In any event this is chicken feed compared to their mortgage backed securities liabilities.
I haven't read the judgement yet but I am interested in why the judge ruled that the charges are not penalties. When they were introduced they represented the actual cost of processing (a typist had to be employed!) Over the years the damages claim morphed into a penalty charge in my opinion. Isn't there a chance that a higher court will decide that the charge is a penalty - re-opening the door for business customers to claim, or can't that point be raised again?
However I am sure that the banks will appeal because they need to postpone for as long as possible their ultimate liabilities because of more pressing 'credit crunch' matters.
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Ralph Lovesy, Denton Wilde Sapte | 24-Apr-2008 5:32 pm
bank charges
This is an important decision, but is only one stage in the process and does not have any immediate implications for consumers.
The judge has given the banks until May 22 to decide whether to appeal. If they do appeal, as seems likely, this case could go all the way to the House of Lords and even the European Court of Justice.
The FSA has issued a waiver from its complaints handling rules that apply to unauthorised overdraft charges complaints. This means that any court claims or claims to the Financial Ombudsman Service relating to unauthorised overdraft charges are likely to remain on hold for quite some time.
It is also important to remember that this ruling mainly concerns whether overdraft charges are capable of being assessed for unfairness. The Court did not decide whether such charges are in fact unfair; that question may well involve a separate test case, which would further delay a resolution to the general issue of whether unauthorised overdraft charges are unfair.
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Anonymous | 24-Apr-2008 6:37 pm
OFT v Banks
IBrian Doctor QC of Fountain Court victorious against an array of silk! Justice for the consumer, indeed. Already Angela Knight of the BBA making noises of introducing bank 'fees' we must remember her previous incarnation as a Treasury Minister under a Conservative Government.
Court of Appeal Judjment 8 February 2008 No A3/2007/0805 NWB v Trustee in Bankruptcy, Babai (Michael Driscoll QC) similarly vindicated in the consumer interest '1980 Statute of Limitation' required reading.
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CincinnatiPete | 25-Apr-2008 1:54 pm
OFT v Banks
Does it not seem strange that the judge has decided that the charges are not penalties at common law? I agree entirely with Martin Rand's point
It seems if a business incurs difficulties with overcharging then it will have no recourse (as the UTCCR's only apply to consumers) which seems totally unfair. Does this mean people will try to run personal accounts for business purposes?
This point must be appealed
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Adrian | 25-Apr-2008 6:51 pm
business bank charges
does this mean that as a small business owner, that i cannot claim my business bank charges?
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Martin Rands | 28-Apr-2008 4:00 pm
business bank charges
I still haven't read the judgement (and probably never will!) as it is 200 pages plus. My understanding is that the judge decided that the charges were not penalties. The consumer can rely on the UTCCR but business is not afforded this protection.
Does anyone know (in a few sentences) why the judge dismissed the penalty arguments? I do not see how a disproportionate charge of £38 can be anything but penal. Although as I said in the earlier post, large charges comprised the actual cost of returning cheques 30 years ago as secretarial and clerk services were employed, unlike today.
I hope the OFT can and do appeal this point or small businesses will have to pass on this unfair penalty.
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CincinnatiPete | 28-Apr-2008 4:22 pm
OFT test case
Adrian, I think as things stand you will struggle to claim back business charges. However the banks are bound to appeal the judgment so we must hope that the OFT cross appeal on the common law penalty charge issue.
Martin I understand that the judge said the charges were not charges at all but payments for a service and therefore the common law did not apply. Quite how he squared that with the UTCCR applying to personal accounts I have no idea
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