Banks 'try to dodge regulations'

By Ian Pollock
Personal finance reporter, BBC News

Brian Doctor QC is representing the Office of Fair Trading

Banks are "playing with words" to try to avoid consumer regulations, the High Court has been told.

Brian Doctor QC, representing the Office of Fair Trading, said recent changes to the banks' current account contracts were not consumer friendly.

He was speaking on the ninth day of a test case to decide if the OFT can rule on the validity of overdraft charges.

Seven banks and the Nationwide Building Society have denied that their charges are unfair.

Mr Doctor argued that the banks were wrong to claim that their overdraft fees were exempt from the 1999 Unfair Terms in Consumer Contract regulations.

"The terms [of their contracts] have been worded in ways which appear to be to get out of the regulations," he said.

Both sides have agreed to the test case to clarify the legal position after a wave of litigation in the past two years, which has seen hundreds of thousands of consumers claim refunds totalling hundreds of millions of pounds.

'Artificial notions'

Mr Doctor told the court that many banks had rewritten their contracts since the beginning of 2007.

The charges themselves are not part of the main subject Brian Doctor QC

But the changes "were not consumer friendly" he said, and in reality had made no difference to the banks' customers.

"The receipt of all this bumph in the last year has not changed the way they enjoy or pay for the services they receive from their bank," he said.

He added that the banks had introduced "artificial notions" about charging fees in return for the provision of a service, which were "simply put in place to provide a theoretical structure to avoid the application of the regulations".

In response to a question from the judge hearing the case, Mr Justice Andrew Smith, Mr Doctor denied that the banks were simply making the contractual situation clearer to their customers.

Could such clauses, which changed nothing about the uses of the account, be exempt from the regulations? asked Mr Doctor.

He also accused the banks of changing the wording of the contracts to avoid any language that suggested the customers might be penalised - possibly unfairly - for a breach of contract under common law.

No right

Mr Doctor spent much of the day attacking the banks' main arguments.

BANK REFUNDS IN 2007 Barclays - £87m HSBC - £116m HBOS - £79m Lloyds TSB - £36m RBS - £81m Source: Bank interim results How much has been repaid?

He said that overdrafts were in the category of things that, by definition, could not be in the main part of a contract.

Among such items were contract terms that the customers had not asked for; those that the supplier was not obliged to provide; "deemed" requests for a service; or preparatory, ancillary or incidental services.

An analysis of bank charges, he said, showed that all these categories applied to unauthorised overdrafts.

"Even if the unauthorised overdraft is part of the main subject of the contract, the charges themselves are not part of the main subject," he said.

Metaphors

Mr Doctor went on to deny the bank's claims that the overdraft charges set out in their contracts were the overall price for the current accounts they provided, and were thus exempt from the 1999 regulations.

Your Lordship will have to get a wet towel to help work out the cost Brian Doctor QC

"They are not a price under the regulations, and are not a price at all," he said.

Rejecting the idea that if a customer went overdrawn without authority they were deemed to be making a request for the overdraft facility, which was then considered by the bank, he said this was a bogus argument because the request did not actually exist.

"This is all a metaphor being played out before customers - the reality is quite different," he said.

Pointing out the difficulty of a customer working out in advance exactly what he might be charged for his overdraft, Mr Doctor offered to go through a couple of worked example for the benefit of the Judge.

"Your Lordship will have to get a wet towel to help work out the cost," he warned.

Outcome

Mr Doctor is half way through his submission to the court in response to evidence supplied by the barristers representing the eight lenders.

The hearing is expected to last until the end of next week, to allow the banks and Nationwide to respond to Mr Doctor's arguments.

It had originally been scheduled for eight days.

The outcome of the long-awaited court case could bring a significant change to the UK current account market.

If the OFT argument is upheld, it could mean banks and building societies having to return billions of pounds collected from customers over the past six years.

However, the losing side is expected to appeal, possibly all the way to the House of Lords, meaning the issue may not be resolved until next year.