MSE News: Bank charges: banks win test case appeal

Former_MSE_Guy

Important MSE Update - 3.30pm:

Hey folks,

Following developments as the day has gone on, we have published the following news stories:

FSA ends bank charges claims hold

Bank charges: the phoenix from the flames

Full bank charges Q&A: how it affects you

Please discuss them at this new thread: http://forums.moneysavingexpert.com/...3#post27234313

Back to original post...

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This is the discussion thread for the following MSE News Story:

Read the full story:
Bank charges: Banks win test case appeal

dirtydavey

I had a feeling that was going to happen. I managed to get back about 400 pounds worth. Guess the other 2000 is lost for good.

ste_coxy

i am well shocked!

i think a lot of dirty back handers have been going on behind the scenes!!!

funkymonkey

I like many was waiting in the queue - however on a reflective note, a lot of people, including myself, have switched banks and are much more money savvy - chosen accounts with better charges and stayed out of charges through having a wake up call. A lot of people will have come to this website after seeing martin on TV and will have learnt new skills and will have read other articles to help them switch utilities etc and save some money.

All is not lost people! we may have lost this battle but we have won many! I for one dont see my bank as my friend as i used to.

I see the banks as greedy and think twice before I take out any credit.

fermi

[STRIKE]Guy: You link points to the British Gas article. [/STRIKE]

Sorted.

chrisjw1972

Oh, knackers.

bluekaw

Just goes to show, the real people of this country don't count for anything we ghet done over time after time, and here is another case, we the people show decide the laws of the land, but no a few people with to much money decide for the few, as long as they've the big country home and fancy cars etc, the don't care about the working person, who support the country and keep things going,

when are we going to get a goverment with some back bone, and do what the majority of the country wants,

what a **** take this all is

dirtydavey

This just sends a message to all british companys to say that its ok to screw about consumers as and when you like. We have no protection.

The very fact that this is a tax on the poor, makes this all the more sick.

dalenpayton

Truly, truly shocking news! Is there any manouevering room left for the OFT and us poor souls? European court maybe? The law in this country is truly mind boggling!

Harry_Powell

http://news.bbc.co.uk/1/hi/business/8376906.stm


A Supreme Court judgement has struck a major blow to the hopes of millions of bank customers seeking billions of pounds of overdraft charge refunds. The court has overturned earlier court rulings that allowed the Office of Fair Trading to investigate the fairness of charges for unauthorised overdrafts.
The decision follows more than two years of test case litigation.
At stake is an estimated £2.6bn of annual income for the banks, which had appealed against earlier rulings.
Seven banks and one building society wanted the court to overturn two previous rulings that would let the OFT investigate their overdraft fees.
In a three-day appeal in the House of Lords in June, the banks argued they would receive a "deluge of litigation" if the decision was made against them.
Historic claims
All new claims against banks were effectively suspended in July 2007 when the OFT and the banks agreed to stage the test case to see if the overdraft charges were legal or not.
The OFT has previously said that even if it lost, it would still try to use other powers, perhaps by instigating a full competition commission enquiry, to attack overdraft fees.
The Supreme Court's president Lord Phillips said that bank customers agreed to pay overdraft charges as part of the price of having a current account, so they fell outside the scope of the appropriate regulations.
But Lord Phillips added that this was not the end of the matter as the OFT could still try to scrutinise bank charges under other parts of the regulations.
"This will not close the door on the OFT's investigations and may well not resolve the myriad cases that are currently stayed [put on hold] in which customers have challenged the relevant charges," he told the court.

orc_2

Supreme court judgement link

http://www.supremecourt.gov.uk/docs/uksc_2009_0070_judgmentV2.pdf

(Too lengthy to copy)

Press release from Supreme Court

http://www.supremecourt.gov.uk/docs/uksc_2009_0070_ps.pdf

PRESS SUMMARY
Office of Fair Trading (Respondents) v Abbey National plc & others (Appellants) [2009]
UKSC 6
On appeal from the Court of Appeal (Civil Division) [2009] EWCA Civ 116

JUSTICES:

Lord Phillips (President), Lord Walker, Baroness Hale, Lord Mance, Lord Neuberger

INTRODUCTION:

This appeal involved a relatively narrow issue. The Supreme Court had to decide not whether the
banks’ charges for unauthorised overdrafts were fair but whether the OFT could launch an
investigation into whether they were fair.
At present, banks provide retail banking services on the basis that customers whose accounts are kept
in credit (in other words who lend money to the banks) will not be charged for the services provided;
customers who have authorised overdrafts will be charged interest on the money that they borrow
from the bank; and customers who incur unauthorised overdrafts will be charged, not only interest on
the sums borrowed, but fixed fees for each particular service involved.
The OFT has power to assess the fairness of terms in consumer contracts but this is subject to the
limits laid down in the Unfair Contract Terms in Consumer Contracts Regulations 1999, which
implemented European Council Directive 93/13/EEC.
Regulation 6(2)(b) states that the assessment of the fairness of a term in a contract “shall not relate . . .
to the adequacy of the price or remuneration, as against the goods or services supplied in exchange”.
In other words, the “value for money” equation is excluded.
The Court of Appeal held that this exclusion applied only to the “core terms” of the contract and not
to ancillary terms such as the charges for unauthorised overdrafts. The Supreme Court unanimously
held that the charges for unauthorised overdrafts fell within this exclusion. They were part of the price
paid by the customer for the banking services provided.
However, the charges might still be open to assessment by the OFT on other grounds under
Regulation 5.
BACKGROUND TO THE APPEAL:
The Office of Fair Trading (‘the OFT’) wished to investigate the fairness, under the Unfair Terms in
Consumer Contracts Regulations 1999 (‘the Regulations’), of the terms (‘the Relevant Terms’) in the
Appellant banks’ contracts with customers imposing charges (‘the Relevant Charges’) on unauthorised
overdrafts. The Regulations implemented European Council Directive 93/13/EEC. The OFT applied
for a declaration that it was entitled to make such an investigation, notwithstanding Regulation 6 (2) (b)
The Supreme Court of the United Kingdom
Parliament Square London SW1P 3BD

T: 020 7960 1886/1887 F: 020 7960 1901 www.supremecourt.gov.uk

of the Regulations, which stated that the assessment of fairness of a term in a contract ‘shall not

relate… to the adequacy of the price or remuneration, as against the goods or services supplied in
exchange’. Both the High Court and the Court of Appeal decided that Regulation 6 (2) (b) did not stop
the OFT from making such an investigation. The banks appealed.
JUDGMENT
The Supreme Court unanimously allowed the appeal by the banks.
REASONS FOR THE JUDGMENT


Lord Walker made clear that the scope of the appeal was limited – the court did not have the

task of deciding whether or not the system of charging current account customers was fair, but

whether the OFT could challenge the charges as being excessive in relation to the services
supplied in exchange (Paragraph 3). As Lord Phillips stated, even if such a challenge was not
possible, it might still be open for the OFT to assess the fairness of the charges according to
other criteria (Para 61).


The key issue was whether the charges constituted the ‘price and remuneration’ as against ‘the

goods or services supplied in exchange’ within the meaning of the Regulations. The Supreme

Court considered and decided a number of arguments as to whether the charges could be said
to be ‘price or remuneration’ under Regulation 6 (2) (b):
(1) The charges were not paid ‘in exchange’ for the transactions to which they related – eg.
honouring a cheque when the customer had insufficient funds to do so (Para 75).
(2) The Court of Appeal was wrong to find that Regulation 6 (2) (b) did not apply to charges that
were ‘ancillary’ to the core contract between the bank and customer (Paras 38-41, 47, 78, 112).
Lord Walker commented that Regulation 6 (2) (b) contained no indication that only the
‘essential’ price or remuneration was relevant. In fact, any monetary price or remuneration
payable under the contract would naturally fall within the language of Regulation 6 (2) (b)
(Para 41).
(3) The charges were not concealed default charges designed to discourage customers from
becoming overdrawn on their accounts without prior arrangement (Paras 88, 114). The High
Court had rejected this argument and was right to do so.
(4) The charges were properly to be regarded as falling within the scope of the Regulations (Paras
43, 80, 104)

. They were in fact part of the price or remuneration paid by the customer in

exchange for the package of services which made up a current account (Paras 47, 89). The

fact that liability to pay the charges depended on specific events occurring was irrelevant to
that conclusion (Paras 47, 104).


Accordingly, since any assessment of the fairness of the charges, which related to their

appropriateness as against the services supplied in exchange, fell within Regulation 6 (2) (b), no

such assessment could take place and so the appeal would be allowed (Paras 51, 90, 92, 118,
119).
Further Comments


Lord Phillips also noted that in the absence of the charges the banks would not be able

profitably to provide current account services without a fee (Para 88). He stated that it might

be open to question whether it is fair to subsidise some customers whose accounts always
remain in credit by levies on others who experienced events they did not foresee when they
opened their accounts (Para 80).


Lord Walker commented that ministers and Parliament had decided to transpose the directive

as it stood rather than to confer the higher degree of consumer protection afforded by the

national laws of some other member states. Parliament might wish to consider whether to
revisit that decision (Para 52). Lord Mance endorsed this comment (Para 118).
The Supreme Court of the United Kingdom
Parliament Square London SW1P 3BD

T: 020 7960 1886/1887 F: 020 7960 1901 www.supremecourt.gov.uk



Lady Hale commented that if Lord Walker’s invitation to ministers and Parliament was to be

taken up, it might not be easy to find a satisfactory solution. She questioned whether the real

problem was not the charging model, but the lack of competition between the banks as to the
product they offered (Para 93).
No Reference to European Court of Justice


The court decided that although the interpretation of the European directive which the

Regulations implemented was a question of European law it was not necessary to refer the

matter to the European Court of Justice (Paras 49, 91, 115, 120).
NOTE
This summary is provided to assist in understanding the Court’s decision. It does not form
part of the reasons for the decision. The full judgment of the Court is the only authoritative
document.
Judgments are public documents and are available at:

www.supremecourt.gov.uk/decidedcases/
index.html