OFT bank charges investigation derailed by Supreme Court ruling
The Office of Fair Trading loses two-year fight to investigate overdraft charges by high street banks
Laurence Rabinowitz QC
The Office of Fair Trading suffered a major blow in the Supreme Court this morning when the country’s most senior judges ruled that the regulator could not investigate the fairness of overdraft charges for unauthorised bank charges.
The five justices of the Supreme Court, led by president Lord Phillips of Worth Matravers, ruled that such an investigation would be beyond the scope of the OFT.
The seven banks and one building society in question had lost their fight against the OFT in both the High Court and the Court of Appeal.
The High Court decided in April 2008 that the overdraft charges could not be deemed as penalties but they could be assessed on their fairness under the Unfair Terms in Consumer Contracts Regulations 1999.
That decision was upheld by the Court of Appeal in February but then the banks appealed to the House of Lords and that hearing was heard in June.
The decision to overturn the Court of Appeal’s ruling will come as a shock to the one million claimants who had sought compensation from the high street banks for being charged unfair overdraft fees. Those actions had been stayed until the 26 January 2010 pending the outcome of the two year battle. It is believed they will now be struck out altogether.
The line up:
DEFENDANT
The Office of Fair Trading: In-house team instructed Jonathan Crow QC, 4 Stone Buildings.
CLAIMANTS
Abbey: Wilson Thorburn, Ashurst, instructed Ali Malek QC, 3 Verulam Buildings.
Barclays: Colin Passmore, Simmons & Simmons, instructed Brick Court’s Jonathan Sumption QC at the appeal stage (instructed Ian Milligan QC of 20 Essex Street in the High Court and Court of Appeal)
Clydesdale Bank: Michael Barnett, Addleshaw Goddard, instructed Richard Salter QC, 3 Verulam Buildings.
HSBC: Simon Orton, Freshfields Bruckhaus Deringer, instructed Mark Hoskins QC, Brick Court
Lloyds TSB: Philip Parish and Andrea Monks, Lovells, instructed Bankim Thanki QC, Fountain Court.
HBOS: Marc Florent, Allen & Overy, instructed Robin Dicker QC, 3-4 South Square
Nationwide: Ewan Brown, Slaughter and May, instructed Geoffrey Vos QC, 3 Stone Buildings
Royal Bank of Scotland Group: James Gardner and Andrew Hughes, Linklaters, instructed Laurence Rabinowitz QC, One Essex Court.
The ruling justices of the Supreme Court
Chair: Lord Phillips
Lord Walker
Lady Hale
Lord Mance
Lord Neuberger
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Readers' comments (43)
TC | 25-Nov-2009 2:02 pm
BLOODY BANKS. Dont they steal enough from us already?? Now the supreme court has found in their favour, it is going to get a hell of alot worse now. They are going to charge for EVERYTHING!!!! Use a cash machine, £2.50 thank you, an account enquiry, £2 to £5 thank you. Am I being paranoid??? You wait. You aint seen nothing yet.
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Anonymous | 25-Nov-2009 3:17 pm
"held that such an investigation would be beyond the scope of the OFT", therefore individual consumers would still have a case. I am but only a law student, but am I right in thinking that the as the appeal court held that the penalties were unfair under the fair Terms in Consumer Contracts Regulations 1999, this ruling on this point would still be authoritative? surely the ruling regarding the scope of a claimant would be a separate issue therefore the decision of the appeal court that the charges are indeed unfair could be used as authority for claimants?
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Anonymous | 25-Nov-2009 3:20 pm
I dont get it.
UCTA says these charges must reflect admin costs and cannot be punitive.
£30 has been shown to be patently absurd as a figure reflecting the true cost of a bounced cheque/ unplanned overdarft.
It doesnt matter that these costs subsidise other areas of the bank - they are still punitive against those that incur them.
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sam | 25-Nov-2009 3:25 pm
Puts the onus completely on the FSA to finally get to grips with the banks and enforce 'treating customers fairly'. Don't expect they will of course considering how abject their regulation has been so far. The role of the OFT and FSA needs a complete revision as no one at the moment is protecting the public from greedy big business. (Goes for many other useless and expensive regulators too).
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Anonymous | 25-Nov-2009 4:41 pm
This is all really quite bizarre ! An unauthorised overdraft is just that, unauthorised - money taken from the bank without it's consent - it is just about tantamount to theft. I cannot see any moral or legal argument which the unauthorised borrower can justifiably deploy against the bank charging him/her for that offence. There may be an argument about how much, but to my mind that is an entirely contractual issue.
If you don't want to pay bank charges for it, then don't take their money without their consent !
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RichardB | 25-Nov-2009 4:57 pm
I think it's a bit unfair of Anonymous 11.40 to slam the OFT in this way. After all, they did win at High Court and Court of Appeal stage... Presumably he/she has never lost a case, in which case Anonymous please reveal yourself so we can all instruct you! Your criticism (and others here) intimate that fighting this was a waste of our money. Personally, I'm glad they didn't just roll over, and presumably if they thought they'd lose, they wouldnt' have bothered in the first place.
I think it's also disingenuous to dismiss comments flowing from the ever-rising tide of public anger ('emotive' Anonymous 1.11) and equally to dismiss links with bonus and bank bailouts. In the public mind they are linked. In legal terms, obviously, one offence is not germane to another, but this judgement will only serve to look, in the public mind, as if one part of the Establishment is propping up another part, to the detriment of the consumer.
The law is supposed to be blind, to offer a genuine, unemotive level playing field to all citizens. But as a citizen it is very difficult to imagine taking on these seemingly untouchable monoliths, possessed of incredible financial resources (look at the amazing array of QCs the banks fielded against the OFT for a start). If any of us do decide to pursue them, it can be time-consuming, difficult and, ultimately, crushing. Banks, ultimately, don't care if they win or lose; they just raise other charges to ensure continued shareholder value. To the Little Man (or woman) it can be an important life-event. Having waded through endless blocking and delaying measures on the part of bank lawyers and reams of bewildering paperwork and aggressive, accusatory letters, the victory can often be a Pyrrhic one.
On the face of it, this judgement appears to do just that: to dismiss a kind of class-action against the banks while saying 'you can do it on your own if you want'. I hope many will. Many will simply give up. That the OFT has apparently overreached its remit (the Unfair Terms In Consumer Contracts Act clearly NOT to be taken at face value!) is not a matter of FACT. It is a matter of legal opinion, and we are left only to wonder about the Supreme Court's refusal to allow an appeal to a Higher set of legal opinions.
Right or wrong in legal terms, this victory for the banks (oops, sorry, Clarification...) could not have come at a worse time and will feel to the consumer as if we are being kicked while we are down.
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Anonymous | 25-Nov-2009 5:00 pm
Why the sympathy for people charged for using money they were not authorised to use?
Would you talk the same indulgent attitude to a neighbour who borrowed your car without permission, because his was not available. Or would you be on the phone to the authorities?
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Anonymous | 25-Nov-2009 5:05 pm
All is not lost. The incompetent OFT has been using the wrong legislation all alog in my opinion.
The frst thing they should have done is appeal against the penalties decision earlier this year. The second thing they should have done is us S5 of the UTCCR not 6(2).
But then who am I to tell the all powerful, all useless OFT.
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Anonymous | 25-Nov-2009 5:10 pm
A straw poll of the three lawyers in the office kitchen produced 2 totally surprised by the ruling and 1 not remotely surprised at all.
I have yet to read the judgment in detail, so I am not going to comment on it directly - the devil is almost certainly in the detail.
But, even if I do not think it is justified, I can, however, understand why all sorts of conspiracy theories will be put forward.
It just goes to show that legislation does not necessarily mean what it says but what the final court of appeal says it means.
The OFT do not seem to emerge from this with any credit: their strategy was wrong and their tactics have been wrong too.
Abandoning the common law penalty angle after the High Court was needlessly risky and one report I have seen suggests that they missed another angle within UCTA itself as well.
Something emerges about the Supreme Court too: it does not seem to have worried about courting public popularity for itself! (Whether that is foolish or reassuring, I have yet to make up my mind.)
PS On a more facetious note, has anyone else noticed the similarity between the Supreme Court's logo and that of the fictional Omega Sector agency in True Lies?
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SP | 25-Nov-2009 5:20 pm
Interestingly, in my inbox this morning, I had an email from Natwest advising me of a change to their terms and conditions....and lo and behold, no unauthorised OD fee if OD by less that £15.00 and fee for unauthorised OD down to £5 from £38. Perhaps that have realised that they are vunerable under the Unfair Contract Terms in Consumer Contracts Regs after all!!
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