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)
anon | 26-Nov-2009 12:28 pm
I don't think it's been mentioned yet but going forward, surely regulation 54(c) of the Payment Services Regulations 2009 provides significant consumer protection. It requires that charges in relation to payment services must correspond to the actual cost.
I'm not an expert on the regs but I believe current accounts fall under their scope. The PSRs are more likely the reason that certain banks have recently cut certain of their charges rather than the SC decision.
Of course, the PSRs are of no assistance to those reclaiming historic charges.
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Anonymous | 26-Nov-2009 5:33 pm
About time a clear ruling, and thus message, regarding personal responsibility for one's financial affairs. If you go overdrawn you pay the price. If you go beyond your overdraft you pay the price. Simple really.
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Mammal | 27-Nov-2009 8:03 am
Why oh why are we reduced to scrapping and wrangling over minutiae and technicalities? we have become insanely analytical, reduced to microscopically poring over this legal interpretation or that interpretation in a desperate attempt to restore a sense of fair play.....
Because the banking system is inextricably interwoven into the fabric of our economy and in turn our political and civil institutions. Therefore consumer anxiety about exhorbitant bank charges, and taxpayer reticence toward bank bailouts are quietly quashed by the authoritative powers, the legal channels for consumer redress have been gradually constricted in favour of the Financial industries. The UTCCR offered a glimmer of hope for the consumer, but not if it dare threaten and humiliate the Banking establishment.......
We should challange the Banking Hegemony....before we sleepwalk into a very nasty socioeconomic catastrophe...(by any means necessary)
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Anonymous | 27-Nov-2009 10:53 am
The decision has attracted more heat than light:
(1) The decision is that the particular charges can not be challenged under the Unfair Contract Terms Regs as they are exempt from the test of fairness as being part of the ‘pricing or remuneration’ for the current account services. The decision is nothing to do with the powers of the OFT as such to take action.
(2) Comments about ‘greedy banks’ or ‘feckless consumers’ may vent ire but do not show the way ahead.
(3) The brief comments of Lady Hale at paras 92-93 are worth reading –that consumer protection laws are to enable consumers to make an informed choice, not protect them from an unwise choice; that bank services are no different from other goods or services in that we are entitled to buy them even if they are not good value for money; that it is a matter for parliament but it will not be easy to find a satisfactory solution; and that it is unclear whether a solution would be to address competition by the banks (I suggest probably not), or to “condemn one particular model for charging for those services [i.e. the current system]” , or something else.
(4) Yet again the OFT has demonstrated itself incapable of achieving consumer protection (assuming it is needed in this context). As a wider question, we should be considering removing supervision of credit from the OFT, leaving it with competition matters (see Hampton Report and others).
(5) As a society we need to form a view whether the current system is fair. Those customers who pay large bank charges include (but are not exclusively) those who are unable to pay the charge – so that it escalates – and are less able to manage money. Do we introduce alternative bank account providers for them e.g. a state bank or non-profit body? Do we introduce a statutory prohibition on the current model, so coercing banks to charge for current accounts by way of (say) a monthly fee payable by all customers? As Lady Hale says, there is no obvious satisfactory solution, but these are the areas we must address. As Lord Walker and Lady Hale indicate, if there is to be change, it is for parliament to make.
(6) Finally, we should be proud of our judges, and the various solicitors and barristers who managed this case. They have delivered a sober reasoned answer to the particular question put. It is now for others to adopt a sober reasoned approach to reform of the current bank charges system.
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Samuel | 27-Nov-2009 4:46 pm
If being charged 39 pounds for going 1 pound overdrawn is not unfair and disproportionate, I just do not know what is.This decision has just given a green light for the banks to rip off the consumer even more.
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Robert | 28-Nov-2009 11:08 am
I for one have had enough. I now intend to devote a great deal of tome and effort into mounting a challenge against the Banks using Sec 5 of the UTCCR.
I will be forming a Group and it will be in the name of that group that I shall take the matter forward.
Comments....anyone.
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Anonymous | 28-Nov-2009 11:24 pm
As a person who assists debtors to overcome their problems I find some of the remarks here not only trite but ill informed. Many low income debtors get into problems for being as little as 25p overdrawn which attracts a penalty of as much as £39. The debtor then finds that as they are unable to pay the debt it spirals out of control. I know of at least one case where the debtor went over by 25p wasn't told until it was too late to rectify & within weeks the debt had reached in access of £700 & that doesn't include the similar charges imposed by those companies being denied payment. Like many this person had not consciously attempted to take money that wasn't his but had make a slight mistake of 25p when working out balance. I ask you where's the fairness in that, unless of course like the banks you believe in draconian behaviour
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Willy Wonka | 29-Nov-2009 8:51 pm
As has been said above, I too hope the more emotive posts here are not by lawyers.
The case concerned a simple question, which was effectively whether overdraft fees (no matter how fair or unfair) were part of the charges for the service provided. If they were, then the OFT's case was bound to fail. They clearly are, so it failed. It really is as simple as that. The Court of Appeal was so far off the reservation that it gave people false hope.
Please, emotive posters, get your heads round this: The Supreme Court Ruling was nothing whatsoever to do with whether overdraft fees are fair. The Supreme Court has not ruled that overdraft fees are fair. Hey, how about you actually read the judgment?
Whether banks are nasty and whether overdraft fees are too high is an interesting subject, but this is a strange place for the debate!
The real scandal here is that hundreds of lawyers have been employed for 2 years over this argument.
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Reverse Bank Charges | 4-Dec-2009 10:10 am
PLEASE HELP BY SIGNING OUR PETITION TO GORDON BROWN TO SUPPORT A CLASS ACTION AGAINST THE BANKS FOR A REFUND OF BANK CHARGES.
http://petitions.number10.gov.uk/classaction/
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paul housego | 4-Dec-2009 4:15 pm
I am sorry, but I really can't understand this. Why don't they put some small stautory instrument through that says that a bank cannot recover money on unauthorised overdraft unless the customer has specifically requested on a separate form that if they exceed their overdraft limit they would like the bank to meet the cheque/dd whatever on unauthorised borrowing terms. Then you'd have to opt in to the charges, and if you didn't want to you couldn't use the Bank's money to meet your liabilities. And if you hadn't signed you wouldn't have to pay anything back, so the bank would be sure to do it right. It can't be that simple, obviously, because it would have been done if it was, but could someone tell me why not?
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