It’s a fair cop

A panel of five Justices of the Supreme Court reversed a Court of Appeal ruling that the OFT could investigate the fairness of bank charges on overdraft fees.

To be absolutely clear, the case focused on whether the OFT had the legal powers to investigate the seven banks and building society in question and not whether the bank charges were actually unfair.

Nevertheless, there is no doubt  that the ruling will be plastered across tomorrow’s front pages as a major victory for the banking community. And once again the bankers will be portrayed as the scourge of society.

Already scathing comments have appeared on The Lawyer.com (see here).

“Another bailout for the greedy banks by those worried about the value of their personal shareholdings….what a disgrace,” says one poster. Another adds: “We bail them out with tax payers money for them to use it on bonuses and golden handshakes for leaving directors. Not for improving lending at reasonable rates for which it was meant.”

Supreme Court Justice Brenda Hale was spot on when she commented in her ruling that: “The banks may not be the most popular institutions in the country at present.”

But, she added: “That does not mean that their methods of charging for retail banking services are necessarily unfair when viewed as a whole.”

It’s a fair point. As another poster on The Lawyer.com highlights: “Overdraft charges (and any other charge for that matter) are conditions of the account. It’s as simple as that. They are avoidable and so really, the OFT was simply answering to public pressure…The OFT have messed up here.”

And yet, given that the OFT had won at first instance and at the appeal court stages, it was a shock for many.

Plenty of commentators had predicted a historic win for the OFT. It was supposed to give the consumer watchdog something to crow about following news yesterday that several construction companies fined for their collusion in building contracts would go to the Competition Appeal Tribunal (CAT) to question the level of the penalties.

Alas, it was not meant to be. And now it is the OFT that is being questioned about whether it was right to bring such a case in the first place.

One partner argues that the consumer watchdog has wasted the last two years by going to the court to see whether it could investigate.

“They should’ve just gone ahead and brought the case,” the partner states. “It took two years to get a ruling on a preliminary point. It would’ve been more sensible to bring a test case - or refer it to the Competition Commission.”

It is certain that the case will now turn into a political hot potato.

Indeed Hale SCJ raises some valid points about consumer choice, asking whether financial services should be treated differently from other goods and services when it comes to consumer choice.

“Is the real problem,” she asks, “that we do not have a real choice because the suppliers all offer much the same product and do not compete on some of their terms?”  Quite rightly, Hale SCJ says this is a matter not for the court but for Parliament.

In the meantime, the OFT will have to consider alternative ways of bringing the banks into line.

“The option of doing nothing is not available,” another partner says. “But where it goes from here is anyone’s guess.”