Bank charges become a testing case

ANALYSIS
By Chris Warner
Lawyer at Which?

After three weeks of hard fought legal argument, Mr Justice Andrew Smith now has to rule on one of the most significant court cases this year.

He must decide if the Office of Fair Trading (OFT) can assess whether or not unauthorised overdraft bank charges are fair.

The stakes are high, with up to an estimated £3.5bn a year in bank fees at stake and thousands of consumers in the county courts waiting to claim back their charges.

The case has been a lesson in subtle legal analysis and a lawyer's ability to dissect a simple sentence.

And it is clear from the complexity of the arguments so far that there is not likely to be an early resolution.

As the judge admitted at the close of the hearing, he has "a great deal to do" before he can make his judgment available so has "no idea at all" when he might do so.

A central issue for the banks to demonstrate is that unauthorised overdraft charges represent the price paid by a customer in exchange for a service provided by the bank.

A relatively simple concept, or so you might think.

But pick it apart and it is clear there are numerous hidden questions that need to be addressed: What is a service? What is a price? When is something in exchange?

Does it matter if the customer and the bank have different views on what is being provided and paid for?

Does it matter if sometimes the same service is provided for free?

The Judge needs to wrestle with each of these, and much more besides.

Common sense

The OFT has urged the judge to take a common sense approach in order to give full effect to the relevant legislation (Unfair Terms in Consumer Contract Regulations).

The order in which payments will be made can have a significant impact on the charges made, but the contracts don't adequately explain this

Artificial distinctions should not be drawn.

If you spend £50 on a pair of shoes in a shoe shop, everyone would agree you have asked for and paid for the shoes, rather than for the various "preparatory" services supplied by the shop, such as measuring feet and searching the stockroom.

The same logic should apply to unauthorised overdraft charges.

You ask for an overdraft, not for the variety of services the banks say you ask for, such as considering the request and processing the payment, and you should be charged accordingly.

Also, says the OFT, if the banks are to be protected by the regulations, then the price must be "a real price", and this means that a customer must be able to calculate the cost of using a service.

The OFT believes this is not possible on the current wording of the contracts.

If the OFT is struggling, how can the average consumer be expected to manage?

The banks, of course, disagree.

Plain English

Even if the banks win on all these points, they have to show the contractual terms in question are in plain intelligible language.

Big decisions lie ahead for Mr Justice Andrew Smith

Ironically, however, this phrase itself is unclear.

Do you, as the banks argue, just look at the words used and, giving them their everyday meaning, see whether a typical consumer could explain what they mean?

If you do, the OFT argues that "seven uncertainties" common to each bank's contracts mean consumers would struggle with this test.

For example, although a bank "may charge" the customer, the contracts don't explain the basis on which the bank will exercise this discretion.

Similarly, the order in which payments will be made can have a significant impact on the charges made, but the contracts don't adequately explain this.

The OFT has also argued that the terms cannot be in plain intelligible language if they do not tell the customer all he needs to know about the practical effect of the clause, even if simple words are used.

An OFT win on this point would be likely provide far more guidance for each of the pending cases.

However, the banks dispute this approach.

They argue that the issues are complex and they've done "the best they can" to make the contracts accessible.

And they say such an approach would mean complex contracts which could never be written in plain intelligible language.

Timing

But does this matter?

Things may be no clearer for quite some time yet

Arguably not - it doesn't mean the terms are automatically unfair; simply that the OFT cannot determine whether or not they are.

But there is a big question mark hanging over this last issue and, potentially, some of the other key arguments.

Whether the unauthorised overdraft charges are fair needs to be assessed at the time the "contract was concluded", and for much of the case, the parties have assumed this is when the contract was last amended.

However, following several questions from the judge, this assumption is now being questioned by the banks.

And because it is "too complex and too important" to be dealt with now, it will be looked at in a separate hearing sometime in the next few months.

It appears that the issue had just not been considered properly before.

This is disappointing given the number of legal minds at work on this case.

If this proves the central issue, it's back to the drawing board for some of the arguments made so far.

Long wait

So what clarity do we now have for those waiting in the wings at the county courts?

Precious little at the moment.

That is why the judge has indicated that these cases should not be resumed yet.

In particular, we have little more clarity on the issue of penalty clauses which is relevant to nearly every case.

This point has largely been dealt with in writing rather than by the lawyers in the court because it involves a detailed analysis of each relevant contract.

We must wait for the judgment to be provided.

As the judge admitted at the close of the hearing, he has "a great deal to do" before he can make his judgment available so has "no idea at all" when he might do so.

And with an appeal already being anticipated, things may be no clearer for quite some time yet.

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