Page last updated at 23:08 GMT, Thursday, 24 April 2008 00:08 UK

Slow progress on bank charges

Analysis
By Ian Pollock
Personal finance reporter, BBC news

Mr Justice Andrew Smith
Mr Justice Andrew Smith's judgement ran to 119 pages

Campaigners are cock-a-hoop that the OFT has been given a green light to rule that bank overdraft charges are unfair.

However it is the end of the beginning, rather than the beginning of the end.

More court hearings - possibly many more - loom in the coming months and the whole issue may stretch well into next year.

For a start, either the banks or the OFT could appeal.

If they think they have sufficiently strong grounds, then such an appeal might go first to the Appeal Court and even to the House of Lords.

If the banks decided to string out this part the dispute, which is purely about the jurisdiction of the OFT, it might seem at odds with their public stance that they want to see the legal issues resolved as quickly as possible.

But with so much money at stake they might feel that they had no choice.

Breach of contract

The OFT might also want another go at some of the issues that were chewed over before Mr Justice Andrew Smith at the High Court earlier this year.

The issue of historic terms and conditions is still wide open
Marc Gander, CAG

His judgement, stretching to 119 pages, dismisses the idea that anyone who goes overdrawn without permission is in breach of their current contract with their bank.

Therefore, he decided, overdraft fees could not be a penalty for breaking that contract, as no breach had occurred.

But what about old contracts?

Most of the banks have been busily re-writing their terms and conditions since customers in their tens of thousands started demanding that their charges be refunded.

"An initial reading of the judgement suggests that the issue of historic terms and conditions is still wide open," said Marc Gander of the Consumer Action Group.

County courts

It is those historic terms and conditions which will apply to most of the thousands of cases that are currently frozen, or stayed, in the county courts and with the Financial Ombudsman Service.

It is clearly a decision for the judge in each individual case to decide what course of action to take
Judicial Communications Office

It does not look as if that stay is going to be lifted anytime soon.

Mr Justice Andrew Smith offered the opinion in court that "the reasons for stays continue to apply".

They first came into effect last July when the banks asked the judiciary, in the form of the deputy Master of the Rolls, to put in place a general halt to new and current cases throughout the English and Welsh legal system.

He declined to do so, but wrote to local judges anyway, inviting them to make up their own minds in the light of the impending High Court test case to resolve the legal issues at stake.

In reality all cases have since been frozen.

The Judicial Communications Office (JCO) says it has written to local judges to inform them of the latest findings, but that there had been no change in policy.

"Attention has been drawn to the judgement but it is clearly a decision for the judge in each individual case to decide what course of action to take," it said.

Waiver

Likewise, the FSA will not be lifting the "waiver" it gave to the banks, which let them park any new or existing claims instead of dealing with them quickly.

That [fairness of charges] is a question that can only ultimately be decided by the Court and not, for example, by the OFT
Clydesdale bank

"The waiver was initially granted for 12 months, or until resolution of the test case - whichever comes sooner," said a spokeswoman.

"The test case has not yet been resolved, it is open to parties to decide whether to appeal the decision, so for now the waiver will continue," she added.

All sides gather again before Mr Justice Smith on 22 May when they will tell him if they do intend to appeal.

One important development, that may come before then, will be when the OFT finally publishes its opinion on whether or not bank overdraft charges are excessive and unfair.

After studying the issue since March last year it has not in fact made a public pronouncement on the issue, though it seems obvious that it must believe that the general level of charges is too high.

Otherwise, why bother taking the banks to court in the first place?

Both sides expect that the precise issue of fairness will have to be thrashed out before a High Court judge in fresh hearings.

The banks are trying to argue that in some way this will remove the OFT from having the whip hand.

"That [fairness of charges] is a question that can only ultimately be decided by the Court and not, for example, by the OFT," said the Clydesdale bank.

That seems rather optimistic.

As Mr Justice Andrew Smith pointed out, the 1999 Unfair Terms in Consumer Contract Regulations made the OFT a "general enforcer".

As such, if the banks do not play ball after the OFT confronts them with its findings, it will simply go to court for an enforcement order.

In that situation the boot should be very firmly on the foot of the regulator and the banks will have to have very strong arguments to persuade a judge that the OFT has got it wrong.

Rejected arguments

What of the judge's detailed arguments?

I do not consider that the payments are the price or remuneration for those services
Mr Justice Andrew Smith

Some of the most highly paid lawyers in the City of London are busy digesting them.

The OFT will be intrigued to learn that nearly all the terms and conditions that the banks currently publish to their customers are, in Mr Justice Andrew Smith's view, in plain and intelligible language.

But the banks may be puzzled why he has rejected their view that the 1999 regulations should not then be applied to their contracts.

They had argued strongly that being in plain and intelligible language gave them a "get-out" clause.

The banks will be even more upset to see that some of their other central arguments were firmly rejected.

They had claimed that their charges were in fact fees for a service, and that their customers received a service even when their cheques were bounced.

"If a bank declines to pay upon a relevant instruction, it supplies no, or no relevant, services by way of considering, processing or otherwise dealing with it," the judge said.

"I am unable to accept that either the paid item charges, and guaranteed paid item charges, or the overdraft excess charges, are the price or remuneration, or even a part of the price or remuneration, that the customer pays," he added.

He was even more scathing of the argument that overdraft charges were fees paid for receiving a whole package of services, in which banking services were free for those who stay in credit.

"I do not consider that the payments are made in exchange for the whole package of services supplied by the bank when it is operating a current account.

"Secondly, I do not consider that the payments are the price or remuneration for those services.

"The payments would not be so recognised by the typical customer when he opens a current account with a bank, and they are not generally so presented by the banks in their terms or other documentation," he added.




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