MSE News: Guest Comment - Bank charges fight still alive

*MF*

The FSA -v- The OFT – Part 2

In this post, and those that follow, I will continue to contrast the FSA and the OFT both in terms of the powers they have – at law, and the manner in which they use such powers.

Let me start with a repeat from an earlier post of where I believe the starting point for the OFT's efforts over bank charges began. I will use another item to provide further evidence of that starting point below, in a press release from the OFT itself..

These are extracts from a BBC article in May 2006:

"Recently - and unexpectedly - the Office of Fair Trading (OFT) ripped into the banking industry's charging regime.

The OFT said that in the future, credit card late repayment charges in excess of £12 would be considered unfair and likely to be challenged in the courts.

Charges, the regulator argued, "should only reflect the administrative costs of dealing with the default".

Not all that dramatic a statement, perhaps, when applied to just the credit card industry. But when the OFT said the same principle would also apply to default charges on overdrafts, you could almost hear the gasps from UK's banks and building societies."


Do those comments reveal, and significantly reveal, how the OFT address the question of fairness over charges, namely that they “ …. should only reflect the administrative costs of dealing with the default”?

For me “fairness” over charges may entail a great deal more, and I think many of those who have been faced with charges might agree. Three easy examples:

It might involve not just the level of the charge, but the number of times it is levied.

It might involve how the imposition of any levies were communicated, if at all.

It might involve taking into account the financial circumstances of the customer.

Leave those thoughts just to stand for the moment, but they will be central to this comparison between how the OFT view such matters, and how the FSA view them.

Let's first make sure that by using only those comments from a BBC article, I am not providing sufficient evidence of the OFT position. What do they think is fair or unfair when it comes to charges, is it just the amount and how that is calculated?

This is a Press Release issued by the OFT in April 2006, please read it in full, however these are for me the items of significant relevance:

" ... The OFT now expects all credit card issuers to recalculate their default charges in line with the principles set out in a statement published today and to take urgent action where needed to reduce the level of credit card default fees. The industry has until 31 May to respond to the statement. These principles also apply to default charges in other consumer contracts such as those for bank overdrafts, store cards and mortgages.

Where credit card default charges are set at more than £12, the OFT will presume that they are unfair, and is likely to challenge the charge unless there are limited, exceptional business factors in play. A default charge is not fair simply because it is below £12. Setting a threshold for intervention is a pragmatic pro-consumer action that is designed to give the industry the opportunity to change its practice without litigation. It is supported by detailed guidance to the industry as to how to reduce the likelihood of public enforcement (see note 2).

A default charge should only be used to recover certain limited administrative costs. These may include postage and stationery costs and staff costs and also a proportionate share of the costs of maintaining premises and IT systems necessary to deal with defaults

Only a court can finally decide whether a charge is unfair or not. The OFT has today set out a statement of its view of the law. This has not generally been accepted by most of the eight credit card issuers... "

I said I would add evidence to the BBC article about the OFT starting point over bank charges. In that first item I have highlighted, you will find it.

Please also note for later consideration, they say that the principles they are applying to credit card charges, will also apply to bank overdrafts, store cards and more importantly - mortgages. That takes us back to the importance of the Concordats that I have emphasised earlier.

Note also the reconfirmation of how the OFT view the "fairness" of charges - related to its price when set against allowable administrative charges.

Lastly, please note that last item, where the OFT accept that it is eventually only a court which can decide on what is fair or not.

That was the starting point, a set of principles, not a court decision, and with, for me, a narrow interpretation of how fairness or otherwise of charges should be determined.

You can find further evidence for the OFT's position via the press release link, namely a guide "Calculating fair default charges in credit card contracts" and a "guide for consumers".

At this juncture it is worth reminding you that the eventual Supreme Court decision did not rule on whether the OFT were correct in their views, they ruled on whether the OFT had the right under UTCCR to even investigate the issue of charges, and ruled that the OFT had no such right..

That is a big difference, from where the OFT started and where it ended, one which to this day has left the issue of fairness over bank charges unresolved.

In my next posts I will offer evidence of how the issues over charges have been addressed by the FSA, and you will see I believe another big difference.

One which leads to this:

Let's ask Lord Turner and the FSA this very simple question:

Do you believe that the charges levied by Banks on their customers were and are fair or unfair?

*******************

The link to the OFT Press Release and the guides mentioned is here:

http://www.oft.gov.uk/news-and-updates/press/2006/68-06

Alpine_Star

Comparisons between the OFT's views on credit card charges and bank charges are misplaced. Credit card charges are default charges but the Supreme Court found that bank charges are not default charges but fees in exchange for the general package of banking services. And as such fall into an entirely different regulatory category.

The OFT were never convinced that bank charges were default charges but thought that they nonetheless fell foul of UTCCR by virtue of them falling outside the exemption of the main subject matter but in the event they didn't.

I obtained the advice given to the OFT Board on the credit card threshold decision including the model used to calculate the banks' default costs and although it's heavily redacted it gives quite an insight into their thinking. It took 2 years of wrangling with the Information Commissioner to obtain under the Freedom of Information Act. I can't post files on MSE but you can see them here http://www.legalbeagles.info/forums/showthread.php?p=215586#post215586

*MF*

The FSA -v- The OFT - Part 3

It is no coincidence that the title to this blog includes the word "Trial". A trial is a place for evidence to be presented, and for a jury to reach a verdict, eventually by reaching a conclusion that is beyond "any reasonable doubt".

This blog has exhaustively sought to present evidence, and perhaps exhaustively is the correct word, both for me as the author and for you as a reader. It is however the only way I know to proceed because I hope one day, the full extent of the evidence on this blog will be used to reach an answer as to whether the charges levied by banks are fair or unfair for the millions that have been affected, and to this day are still affected, by such charges - where to date there has been no definitive answer as to their fairness or otherwise.

I introduce the term "any reasonable doubt" deliberately at this juncture because I have raised the doubt that the OFT, and their use of the UTCCR was not, for me, the correct starting point to find an answer to this issue. I have more than one reason for that conclusion, and each will form part of the evidence to follow.

What I wish to do at this stage is examine the actions of the FSA, not the OFT, and how the FSA use the powers they have been given by Parliament, and those which arise under EU Regulations.

Now some of those powers are shared between the OFT and the FSA. Recognising that fact - there have been agreements, Memoranda of Understanding, and Concordats signed by the OFT and the FSA.

Therefore I presented evidence: Test 3: Evidence that the Concordat agreed between the Financial Services Authority and the Office of Fair Trading established the basis for real consumer detriment and serious regulatory failings.

I now wish, through looking at the actions of the FSA, and the results of their actions, to combine Test 3 with the fourth of the Tests, ending with this evidence, namely:

Test 4 - Evidence, which must be irrefutable and unequivocal, that the Financial Services Authority expect charges to be a fair reflection of the additional administration costs faced, not a way to increase profits or offset costs from other parts of a business.

Those, and there are many, who have a detailed knowledge of this whole subject (many with knowledge much greater than mine) will recognise how that last fourth test would affect the banks and their earnings from charges, and why therefore I am dealing with this matter in exhaustive detail. But I ask those with that knowledge just to bear in mind that we do NOT yet have an answer to whether charges are fair or not - that knowledge is at present denied to us all.

Let's start here in our search for "any reasonable doubt":

In December 2009, the heads of the OFT and the FSA published a Memorandum of Understanding, incorporating Concordats and agreements signed earlier - you will find the full details in links in earlier posts - for now here are the extracts I wish to use:

• Consumer protection


Both the OFT and the FSA’s work under this theme have, at heart, the same outcome in mind – essentially ensuring that consumers are treated in a fair, considerate and responsible way in their dealings with financial services firms.

Consumer protection interventions by the OFT are designed to support the development of competitive, efficient and innovative markets, where standards of consumer care are high, consumers have choice and are empowered and confident about making choices, and where businesses are not unduly burdened by government regulations and are encouraged to offer benefits to consumers beyond the minimum standards of protection afforded by the law. The OFT superintends the working of the Consumer Credit Act (1974) and regulations made under it.

Interventions by the FSA to achieve an appropriate level of consumer protection are designed to address the market failures in the relevant financial market that have led to poor consumer outcomes. It does this in such a way that the costs are proportionate to the benefits, and to manage the risks that firms’ conduct causes consumer detriment or damages consumers’ confidence in financial services markets. Interventions in this area are carried out through the FSA’s Conduct of Business rules and mainly target problems of asymmetric and imperfect information.

Interaction under this theme is wide ranging. It encompasses several concordats covering enforcement of the Unfair Terms in Consumer Contracts Regulations 1999 (UTCCRs), the Consumer Protection from Unfair Trading Regulations 2008 (CPRs) the Enterprise Act 2002 (EA02) and the Banking Conduct regime.

In addition the OFT and the FSA are Competent Authorities under the Consumer Protection Co-operation Regulation 2007 (CPC), which requires national bodies responsible for the enforcement of European consumer protection laws, designated as competent authorities, to help each other by exchanging information and cooperating on cases which harm the collective interests of consumers and contain a cross-EU border element. The Competent Authorities, including the OFT and the FSA agreed protocols setting out how they should work together to carry out their responsibilities under the CPC.

Unfair Terms in Consumer Contracts and Consumer Protection Regulations

Both the OFT and the FSA have powers in relation to unfair contract terms under the Unfair Terms in Consumer Contracts Regulations. We coordinate enforcement action and cooperate to ensure the effective and consistent delivery of consumer protection in this area. Under the ‘Unfair Terms’ Concordat, we set out arrangements for consulting and liaising to reduce duplication of effort and to promote appropriate action by the body best placed to lead on an issue. See Annex B.

The OFT and the FSA have adopted a similar approach in the Consumer Protection Regulations, which can be found at Annex C.

Banking

The OFT and the FSA will work together to ensure that a consistent and coordinated approach is taken under the Consumer Credit Act, the Financial Services and Markets Act, the Payment Services Regulations and the FSA’s Handbook in relation to potential regulatory breaches and to agree which party is best placed to lead in each case.

All of this is set out in a Concordat which details the working relationship and division of responsibility between the OFT and the FSA, and which can be found at Annex D.

*****************

One of the most frequent comments offered to me by those who know of this blog, and who have detailed knowledge of the subject at issue, is that the OFT have certain responsibilities, and likewise for the FSA, and that it is therefore obvious whether it is the OFT or the FSA who should address one issue as against another.

From those extracts, indeed from all of the similar Plans, Concordats and agreements twixt the FSA and the OFT, I personally do not think it is obvious - I think there is considerable room for doubt - reasonable doubt. And there is evidence to support that doubt.

"Both the OFT and the FSA’s work under this theme have, at heart, the same outcome in mind – essentially ensuring that consumers are treated in a fair, considerate and responsible way in their dealings with financial services firms." - is it reasonable to assume that both bodies recognise that they have a joint, not individual, responsibility to consider how the consumer is affected and dealt with to achieve that stated outcome?

Banking

The OFT and the FSA will work together to ensure that a consistent and coordinated approach is taken under the Consumer Credit Act, the Financial Services and Markets Act, the Payment Services Regulations and the FSA’s Handbook in relation to potential regulatory breaches and to agree which party is best placed to lead in each case - is it reasonable to assume that working together means using the various powers, not one versus another, to achieve the best outcome for the consumer?

Yes, I agree - whether those assumptions are or are not reasonable - we need evidence. That is what will follow in my next series of posts.

But just for the moment, ask yourself this one question - having read those extracts, and perhaps the whole document - are you sure, 100% sure, that only the OFT could have acted over this issue, and equally 100% sure that it had nothing whatsoever to do with the FSA?

Even when you read this: "... we set out arrangements for consulting and liaising to reduce duplication of effort and to promote appropriate action by the body best placed to lead on an issue".

Or, is that perhaps where it all went wrong, the wrong body took the lead?

Let's see what the further evidence tells us, when we look at those instances when it was the FSA, not the OFT, who took the lead.

*MF*

The FSA -v- The OFT - Part 4

It may help those reading these posts if I suggest a way of thinking about what each post is intended to achieve. The best way I can do so is to ask if you have ever played the board game "Cluedo"? At the start you are trying to find an answer to something, and move by move you accumulate more and more information, which allow you to narrow down that answer.

That, in fairly simplistic terms is what each item in this blog is about, each item is a piece of knowledge, evidence, and although each is important, just as in "Cluedo" it will not be until the last posts that the only obvious answer becomes apparent.

It may also explain why I have adopted this method of presenting evidence in fairly painstaking detail. Eventually, those of you who log into this blog will see the latest post with what I believe is the answer - and if that is the only page you ever see, perhaps it may be the very first time you will ever have visited - you may well ask how did I get to that answer? Do I have any evidence to justify the answer? Well, yes - just sit down, have a coffee or tea, and read it all - and see if you agree.

I make those comments, because this post and the others that will follow immediately after are important, but their importance is unlikely to be immediately apparent, but I assure you, just as in "Cluedo" we need them to form the eventual answer - in this case an answer to:

Test 3: Evidence that the Concordat agreed between the Financial Services Authority and the Office of Fair Trading established the basis for real consumer detriment and serious regulatory failings.

In the last post I used this extract from one of those Concordats

" Banking

The OFT and the FSA will work together to ensure that a consistent and coordinated approach is taken under the Consumer Credit Act, the Financial Services and Markets Act, the Payment Services Regulations and the FSA’s Handbook in relation to potential regulatory breaches and to agree which party is best placed to lead in each case"

I am going to offer into evidence an item which involves the UTCCR, which involves banks, where terms were deemed to be unfair, where the banks accepted that they were unfair - and while that may have its own relevance in the issue over bank charges - I want to use it at this juncture to illustrate how what might be agreed in theory between the FSA and the OFT may not play out in practice.

Why? Because that is what I believe happened over bank charges. The following item is in no way incontrovertible evidence in that issue, but it does demonstrate what I said earlier, that what might seem obvious, may not be. I will expand on that theme in the posts that follow.

However, for now just read that above extract again - and let's say you are playing "Cluedo", you have just entered a room, and you are given this information: " ... The OFT, in its role as primary enforcer of the Regulations, issued guidance in February 2001 (reissued in September 2008) (OFT 311) on its interpretation of the Regulations ..."

Now, given that comment, just on that evidence, your only clue, who would you conclude would be the party who took the lead? The OFT or the FSA?

If that was your only information - it has to be the OFT, hasn't it?

Let's find another extract, and see if that helps, this one " ...As a qualifying body under the Unfair Terms in Consumer Contracts Regulations 1999 (the Regulations) we can challenge firms that are using terms which we consider unfair."

Does that help? Well, not if you know, that both the OFT and the FSA are qualifying bodies under the UTCCR - it doesn't help at all - in fact, it leads to confusion, and doubt. It leaves a question unanswered. Is that perhaps what happened over bank charges - confusion, doubt, and a question unanswered?

But re-read the extract - it mentions the Consumer Credit Act - and the Financial Services and Markets Act - and the Payment Services Regulations - does that alter the situation?

Let's see, here is the document I am using. I will let you read it in full for yourself.

I said above that it has its importance, but that its direct relevance to the issue of bank charges will be something I address later. All I want to establish for now is that something that may appear obvious in theory, may alter in practice.

Whilst I prepare the next set of posts which add further evidence, let me leave you with some questions.

When as is often said, that it fell to the OFT alone to challenge the issue of bank charges - that assertion is based on the application of the Consumer Credit Act.

But think through the above example - what was involved? Powers under the Consumer Credit Act? Powers under the Financial Services and Markets Act? Powers under the Payment Services Regulations? Powers under the UTCCR? Or a mish-mash of some but not all of those, where either the FSA or the OFT could have taken the lead? If you were playing "Cluedo" would you have enough information, or might you need more clues before you offered an answer?

Cast your mind back, and when you think of what may appear to be the exclusive powers of the OFT under the CCA to address the issue of bank charges - think also of the Waiver. Who issued that Waiver, and under what item of legislation? Was that another case, where different items of legislation were in play, where different regulators operating under differing powers appeared, where one acted on its own, and the other, apart from the waiver, virtually disappeared?

Should the powers granted to the FSA under the FSMA have played a part beyond the issue of the waiver. Indeed, was the issue of that waiver, a clue to something very important, that we all over-looked?

The story of bank charges, as you look back, has involved the FSA, and their powers under that Act. But were they fully deployed?

When the OFT became the lead in the issue, were important, perhaps vital, issues overlooked?

Was it inevitable that would be the case, because when it comes to Concordats and agreements, no matter how well intentioned - as the old saying has it "too many cooks spoil the broth!"

The next posts will offer further evidence of that conclusion and will look more closely at that other item of legislation, the Financial Services and Markets Act.

It contained the very substantial regulatory powers that singularly allowed court cases, and cases at the FOS, to be put on hold.

What else might it do when applied to the issue of bank charges being fair or otherwise?

***************

The document I refer to above, involving banks, the UTCCR, the FSA and the OFT, can be found here:

http://www.fsa.gov.uk/pubs/other/rbs_undertaking.pdf

*MF*

The FSA -v- The OFT - Part 5

To provide a context against this post, let me quickly make reference to two earlier posts on this blog.:

- one where I called the Concordats. Memoranda of Understanding, and Plans drawn up by the FSA and the OFT as a "blizzard", and I listed a whole series of those Concordats etc to show just how much of a "snowstorm" it had been, and which in my opinion, despite what was intended, eventually led to a regulatory failure over this question of bank charges.

- the second where I suggested that the OFT had taken the lead in the matter of bank charges because of their previous accomplishments over credit card charges, but where I also suggested that their way of addressing whether charges were fair or not, based on the credit card position, was in my opinion far too narrow.

The full details, and the evidence, on both points are in earlier posts on this blog

In this post let me lead - evidence - which I believe supports both of those opinions.

Extracts from this blog are appearing elsewhere, and I am grateful to one of those taking an interest in what I am saying and challenging it, which I welcome, has provided me with evidence, I did not previously have, and with which I wish to start.

This is the source link for that evidence, and it appears on the Legal Beagles forum, a forum which contains members with an undoubted knowledge, and depth of knowledge, on this subject (and indeed many others).

These are the extracts, I wish to draw from that link, but as in all such cases where I am selecting extracts, please do consider reading the whole items:, they are originally sourced from the OFT

" ... Our basic position is that charges must be cost reflective.

The plan to take forward the preferred strategy of preparing and publishing a statement of principles for assessing the fairness of charges, which would state a threshold figure for our future intervention.

We recommend setting a single, straightforward threshold.

Our public line is that the principles established in the credit card cases apply to default charges in a wider range of financial contracts, such as for overdrafts and first mortgages."

That last extract, that evidence, I believe confirms the second of my earlier opinions, namely that the OFT won a victory over charges that related to credit cards, and right or wrong, saw that as the opportunity to take the same strategy and thinking forward and see it deployed on the question of overdrafts and mortgages.

However, I want to use that last extract, that evidence, in support of the first opinion that I stated above, and which forms the basis of Test 3: Evidence that the Concordat agreed between the Financial Services Authority and the Office of Fair Trading established the basis for real consumer detriment and serious regulatory failings.

Let's repeat the extract,the evidence, but let me highlight two words:

"Our public line is that the principles established in the credit card cases apply to default charges in a wider range of financial contracts, such as for overdrafts and first mortgages."

That extract comes from a heavily redacted document (check it out via the link above). It was dated - February 2006 - a time when some of the very many Concordats and agreements between the OFT and FSA were in force.

However, in November 2007, something important began a change, something which eventually broke the complexities of all the Concordats, all of the OFT and FSA Plans, and for me, it is the clearest of evidence for all the dangers that this "blizzard" of documentation, caused.

What started as a change in 2007 is something which not only allows me to offer evidence on Test 3, but which far more importantly shows why I believe the FSA are the route to take to obtain an answer to this question over the fairness or otherwise of bank charges.

What was it that happened?

Start here:

" Mortgage Agreements - Dual Regulation

Avoiding dual regulation of residential mortgage agreements

BERR and HM Treasury have been working together to address concerns raised by industry stakeholders that there may be circumstances in which residential mortgage agreements can be subject to two competing regulatory regimes.

The Government consultation, which closed on 14 February 2008, sought views on proposals for legislation to avoid the simultaneous regulation of regulated mortgage contracts (RMCs) by both the OFT (which regulates consumer credit under the Consumer Credit Act 1974 (CCA)) and the FSA (which regulates residential first charge mortgages under the Financial Services and Markets Act 2000 (FSMA)).

The Government is amending section 82(2A) of the CCA to ensure that any RMC is regulated only under FSMA. The legislation will take effect on 6 April 2008.

This is a deregulatory measure only to avoid dual regulation. There is no change to the treatment of agreements that are exempt from regulation under the CCA regime except in relation to the risk of dual regulation of RMC agreements.

The Government response to the consultation was published on 14 March 2008 and is available on the HM Treasury website."

Source here. in the National Archives

If you wish to read the full consultation, go here (it was dated Nov 2007 and again drawn from the National Archives).

It was the end of the OFT's involvement in overseeing first mortgages which is why I highlighted those two words earlier

It established that it was the FSA, not the OFT, who were to use their powers to oversee first mortgages.

(Nope - I know, I know only too well, that I need to establish the evidence, the hard evidence, that leads us to bank charges and the FSA - that will follow.)

But what I want to do at this juncture is to complete this comparison of the FSA -v- the OFT. - to offer the evidence that contrasts what the OFT were thinking they could do - the threshold charge - and compare that not with what the FSA "thought" they could do, but what they have actually done.

I think - in the posts that follow - you will see a very stark difference.

A difference which arises - in the absence of the "blizzard" of Concordats, and which demonstrates the range of powers afforded to the FSA under the Financial Services and Markets Act.

The evidence for that stark difference follows in the next set of posts.

*******************

The links involved:

See the post above from Alpine Star to the Legal Beagles forum.

http://webarchive.nationalarchives.gov.uk/+/http://www.berr.gov.uk/whatwedo/consumers/consumer-finance/credit_regulation/consultation/index.html

http://webarchive.nationalarchives.gov.uk/+/http://www.hm-treasury.gov.uk/media/4/5/consult_modifiedcreditagreements211107.pdf

******************

Beyond ticking the "Thanks" button, I wish to offer my public thanks to Alpine Star for advising me of the items from the OFT. :T

*MF*

The FSA - In Action

In my last post, I ended with this comment:

But what I want to do at this juncture is to complete this comparison of the FSA -v- the OFT. - to offer the evidence that contrasts what the OFT were thinking they could do - the threshold charge - and compare that not with what the FSA "thought" they could do, but what they have actually done.

If you refer back to that last post you will see me offer the comment that in my opinion the OFT approach of establishing a "threshold charge" was too narrow. But that is just an opinion - I believe it to be justified, but you may not share that opinion.

Be that as it may, what I want to do now is list an extensive range of evidence which shows how the FSA have dealt with, and to this day still approach the question of charges, their approach to how customers should be treated, and their approach to those levying any charges.

No, I am not yet attempting to link the FSA and Bank charges. I could do so at this juncture, but this blog is intended to be "a body of evidence", just as would be presented in a trial. It follows a sequence, and this series of posts is of great importance.

I have to demonstrate through the evidence which follows that the FSA have a detailed, consistent, and already firmly established basis for addressing factors such as unfair charges, the treatment of consumers, and their response to financial companies who do not conform to the requirements imposed on them by the FSA.

Now, for some reading this, and who have a detailed knowledge of the whole subject of bank charges, I may be accused of drawing this evidence against the subject of mortgages, and that I cannot therefore apply this evidence to the question of bank charges.

I would ask those - please bear with me - this evidence is very important when I do reach the question of bank charges and link the issues involved very directly to the FSA, for these reasons:

1) - Most importantly because if we can establish very detailed evidence of how the FSA think - and more importantly act - in matters such as these - then when I offer the evidence of why that final link between the FSA and bank charges is established we have the firmest platform possible for this question:

Let's ask Lord Turner and the FSA this very simple question:

Do you believe that the charges levied by Banks on their customers were and are fair or unfair?

2) - the evidence I will lead does not involve the OFT, and it further allows me to demonstrate through the evidence that follows that it was the "blizzard" of Concordats between the FSA and the OFT that has caused consumer detriment, and why we still do not have a answer to whether bank charges are fair or otherwise.

3) - because the focus of attention over the issue of bank charges has always been with the OFT, it has left the powers granted to the FSA under the Financial Services and Markets Act (FSMA) to be left with little if any scrutiny. This blog is dedicated to reversing that position.

I should at this stage offer a warning - the items of evidence that follow are extensive and detailed, and will follow item after item after item.

For those who wish an easy answer, a quick way forward - perhaps these will not be for you?

For those, and I am one, who wish a fully documented trail of hard evidence, and for it all to be on the record, open to anyone to read in whatever manner they choose, open to challenge, open to argument, then these items are vital.

Some items will be drawn from the FSA website, some from the Financial Services - Consumer Panel. Some date back a few years, some are drawn from documents only appearing in the last few days.

They will allow those who view the evidence to assess for themselves whether the approach used by and acted upon by the FSA is both much wider than that adopted by the OFT, and whether it is consistent.

In my next post, I will post the first item (in a long list of items). I will, as usual, use extracts to highlight what for me is important - but, also as usual, will also provide the links to the evidence itself so that it can be read in full.

To give you an idea of what some of the items may involve, these are two very small, very limited extracts from a 14 page "Final Notice" issued by the FSA, using their powers under the FSMA:

"The FSA gave GMAC-RFC Limited (“GMAC”/“the firm”) a Decision Notice on 26 October 2009 which notified the firm that pursuant to section 206 of the Financial Services and Markets Act 2000 (“the Act”), the FSA had decided to impose a financial penalty of £2.8 million on the firm. This penalty is imposed for breaches of Principle 3 (Management and control) and Principle 6 (Customers’ interests) of the Principles for Businesses (“the Principles”) and Rules 12.4.1 R and 13.3.1 R in the Mortgages and Home Finance: Conduct of Business sourcebook (“MCOB”) in the period between 31 October 2004 and 30 November 2008 (“the Relevant Period”).

GMAC will also carry out a customer redress programme with a view to providing redress to those customers who were charged specific excessive and unfair charges (i.e. charges that were not a reasonable estimate of the costs of the additional administration required as a result of the customer being in arrears) in respect of their mortgage account. The estimated cost of redress for the period 1 November 2004 to 31 August 2009 is up to £7.7 million, plus interest, for both regulated mortgage contracts and buy-to-let contracts."

My next post will provide the links to that item, offer some comments, and perhaps most importantly some much needed explanations of some of the terms used, eg., when you read the words "MCOB", that refers to the "Mortgage - Conduct of Business" Rules.

Be aware - just for now - that there are also "BCOB" - "Banking - Conduct of Business" Rules - they will form part of the link we need when we address bank charges.

Just please remember my warning - the next long series of posts are not for the faint hearted - but they are vital.

*MF*

The FSA - In Action - The legal basis for that action.

There may be those reading this blog who have little knowledge of the FSA, and many who have perhaps no knowledge of its powers, and how it uses them.

In my last post I had to briefly explain "MCOB" and "BCOBS", many of the posts that follow contain references like that - which if you have day to day dealings with such terms they will not present any problems. However, if they are new to you, perhaps these notes will help - I am not convinced they will, but I hope so.

First, a link to the essential facts about the FSA, as presented by the FSA.

For my purposes, some in a general sense, some more specifically,these extracts are important, including the items I have highlighted:

What is the FSA?

We are the main statutory regulator for the UK financial services industry. We were established by an Act of Parliament in 2000 and formally gained our powers on 1 December 2001. We regulate some 29,000 firms, which includes EEA firms passporting into the UK, ranging from global investment banks to very small businesses, and around 165,000 individuals. This industry contributes 6.8% of UK GDP and employs over 1.1 million people, providing products and services to millions of consumers.

What is the FSA's purpose?

We were given five specific, and equal, objectives by Parliament. These are: maintaining market confidence; promoting public understanding of the financial system; contributing to the protection and enhancement of the stability of the UK financial system; securing the appropriate degree of protection for consumers; and fighting financial crime.

In practice, this means that we want to make markets work effectively to deliver benefits to firms and consumers. We operate a risk-based approach concentrating on the big risks and accepting that some failure neither can, nor should, be avoided. Potential risks are prioritised, using impact and probability analysis, and we then decide on an appropriate regulatory response – in other words, what approach we will take and how much resource we will allocate to mitigating the risk.

Who decides what the FSA regulate?

The scope of our authority was initially set out in the Financial Services and Markets Act 2000 (FSMA). Since then, Parliament has extended our responsibilities to include, for example, mortgage lending and insurance broking.

Some financial services, such as consumer credit and occupational pension schemes, are not regulated by the FSA. In addition, some businesses that may appear to be offering financial services, such as buy-to-let property clubs or compensation claim handlers, fall outside the FSA's scope.

Only Parliament currently has the authority to add to our remit.

In far more specific terms, the items to follow will make reference to various Sections of the FSMA, and how they have been applied by the FSA; they will make reference to "Principles" and to items like the "MCOB" I mentioned earlier.

For those who wish to source those references as they appear, the FSA Handbook is the place to go.

I do strongly recommend that you click on that link (take a very deep breath before doing so) because you are about to see one of THE most complicated inter-linking set of rules, principles, and requirements that can be imagined. That is why in an earlier post - I said this ain't easy.

I hope that this short explanation may help - but even providing it - ain't easy.

The FSMA gave the FSA powers. The FSA have established what is basically a "heirarchical" set of rules - some are "high level" and apply to all the firms that gain FSA authorisation to do business.

Others are best described as "activity specific" requirements, and vary in their nature between say Banks, or Investment Companies, or IFAs.

Thus working down that hierarchical structure you may see PRIN: SYSC: COND: APER: COBS: ICOBS: MCOB: BCOBS: CASS: MAR. Easy peasy - it ain't!

This might give you a taste ( a good or bad taste - I don't know):

The Full Handbook - High Level Standards

Principles for Businesses - the fundamental obligations of all firms under the regulatory system - PRIN

Senior Management Arrangements, Systems and Controls - the responsibilities of directors and senior management - SYSC

Threshold Conditions - the minimum standards for becoming and remaining authorised - COND

Statements of Principle and Code of Practice for Approved Persons - the fundamental obligations of approved persons - APER

One which will figure in the items that follow are these - Principles for Businesses - the fundamental obligations of all firms under the regulatory system. Details - in perhaps overwhelming detail - here

And if you want to gain an insight into MCOB, or BCOBS, or any of the other COBS - go here

Enough already - I am in no way sure that will help many - but that is the background against which the following posts become relevant, and will in due course play their part in establishing the link between the FSA and the question over bank charges being fair or otherwise.

They will in part lead to this:

Let's ask Lord Turner and the FSA this very simple question:

Do you believe that the charges levied by Banks on their customers were and are fair or unfair?

Yes, I know I keep repeating that - but at the end of these posts, in the conclusion of this blog - I hope I may not be the only person addressing that question to Lord Turner and the FSA.

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Relevant links used (for those who wish to follow them) were:

http://www.fsa.gov.uk/pubs/other/essential_facts.pdf

http://fsahandbook.info/FSA/html/handbook/

http://fsahandbook.info/FSA/html/handbook/D3

http://fsahandbook.info/FSA/html/handbook/D136

*MF*

The FSA - In Action - 1/5

This is the first of 5 posts, which relate to the FSA taking action against firms which they regulate.

I will offer little by way of comment, but will instead provide links in each case 1) to the FSA Press Notice involved and 2) to the "Final Notice" given by the FSA to the firms or individual involved.

In each of these 5 posts I will include highlighted extracts.

1: To illustrate why I hold the view that the OFT approach of setting a "threshold level" was too narrow.

2: To further illustrate that aspect by highlighting both the breadth and depth that the approach used by the FSA stands in comparison to the OFT - you will be able to judge the truth of that or otherwise for yourself

However - I do not want anybody to be misled in any way when I use extracts so I do urge you to use the links provided and read each item in full.

As you do so, you will find reference to some of the items I have commented on before - such as the high level "Principles" that the FSA apply to all those that they regulate, reference also to the powers granted under statute to the FSA, and lastly reference to the - activity related - "Conduct of Business" rules.

In each of these 5 posts we are looking at those "Principles" as they apply to all firms regulated by the FSA -and those "Conduct of Business Rules" as they apply to mortgages (MCOB)

However as you see how they are enforced by the FSA, just bear in mind (perhaps heavily) that those high level "Principles" do apply in the very same way to Banks, and everyone else authorised by the FSA - they are universal in their application.

And also bear in mind (again perhaps heavily) that banks do not escape similar, although not identical "Conduct of Business Rules" this time called "BCOBS".

You can find full details in the links for the full FSA Handbook I listed in an earlier post

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Let's make a start with the first Press Release-

From here - please do read in full.

Some extracts:

The Financial Services Authority (FSA) has today announced it has fined GMAC -RFC Limited (GMAC-RFC) £2.8million for failing to treat customers fairly and secured redress of up to £7.7million (plus interest) for over 46,000 mortgage customers.

Between 31 October 2004 and 30 November 2008, a number of serious failings by GMAC-RFC were identified in relation to its dealings with customers experiencing arrears and repossessions. These include:

- excessive and unfair charges for customers that did not reflect administration costs;

- proposing repayment plans that did not always consider a customer’s individual circumstances;

Margaret Cole, director of Enforcement and Financial Crime, said:

“This case shows credible deterrence in action. It is an excellent example of what the FSA’s more intrusive approach can achieve for consumers, and it reflects what we said in our Mortgage Market Review last week about unfair mortgage arrears charges.

Now, let's move to the "Final Notice" involved - please again read in full

Some extracts:

TAKE NOTICE: the Financial Services Authority of 25 the North Colonnade, Canary Wharf, London E14 5HS (“the FSA”) gives you final notice about a requirement to pay a financial penalty:

1. THE PENALTY

1.1. The FSA gave GMAC-RFC Limited (“GMAC”/“the firm”) a Decision Notice on 26 October 2009 which notified the firm that pursuant to section 206 of the Financial Services and Markets Act 2000 (“the Act”), the FSA had decided to impose a financial penalty of £2.8 million on the firm. This penalty is imposed for breaches of Principle 3 (Management and control) and Principle 6 (Customers’ interests) of the Principles for Businesses (“the Principles”) and Rules 12.4.1 R and 13.3.1 R in the Mortgages and Home Finance: Conduct of Business sourcebook (“MCOB”) in the period between 31 October 2004 and 30 November 2008 (“the Relevant Period”).

1.3. GMAC will also carry out a customer redress programme with a view to providing redress to those customers who were charged specific excessive and unfair charges (i.e. charges that were not a reasonable estimate of the costs of the additional administration required as a result of the customer being in arrears) in respect of their mortgage account. The estimated cost of redress for the period 1 November 2004 to 31 August 2009 is up to £7.7 million, plus interest, for both regulated mortgage contracts and buy-to-let contracts.

2.1. The breaches of the Principles and MCOB Rules, which are described in more detail in section 4 below, relate to a number of serious and sustained failings by GMAC in its dealings with some of its customers in arrears or facing repossession, in relation to their mortgage with GMAC.

2.3. The firm breached Principle 6 during the Relevant Period in that it failed to pay due regard to the interests of its customers and treat them fairly. In particular, the following failings were identified in that GMAC:

(1) failed to ensure that mortgage servicing staff had an adequate understanding of and implemented the requirement to treat customers fairly in handling its mortgage arrears and repossessions;

(2) until late 2008, focussed on the collection of payment of arrears over a short period of time within fixed mandates, rather than always establishing a suitable arrangement based on the customer’s individual circumstances;

(3) applied certain charges to a customer’s account that were unfair in that they did not accurately reflect the actual cost of administering an account in arrears;

(4) had not arrived at a cost-based approach to the calculation of its arrears charges and therefore could not be sure that they were reasonable compared to the actual cost incurred;

3. RELEVANT STATUTORY PROVISIONS AND GUIDANCE

3.1. The FSA’s statutory objectives are set out in section 2(2) of the Act. The relevant objectives for the purpose of this case are maintaining market confidence and the protection of consumers.

3.2. Section 206 of the Act provides:

(1) If the Authority considers that an authorised person has contravened a requirement imposed on him by or under this Act, it may impose on him a penalty, in respect of the contravention, of such amount as it considers appropriate.

3.3. GMAC is an authorised person for the purposes of section 206 of the Act. A requirement imposed on a firm includes the Principles and Rules made under section 138 of the Act, which provides that the FSA may make such rules applying to authorised persons as appear to be necessary or expedient for the purposes of protecting the interests of consumers.

3.5. Principle 6 provides that:

A firm must pay due regard to the interests of its customers and treat them fairly.

3.6. MCOB 12.4.1 R provides:

(1) A firm must ensure that any regulated mortgage contract that it enters into does not impose, and cannot be used to impose, a charge for arrears on a customer except where that charge is a reasonable estimate of the cost of the additional administration required as a result of the customer being in arrears.

Arrears charges

4.16. GMAC imposed certain charges related to activities carried out whilst the customer was in arrears, in circumstances that resulted in the unfair treatment of customers.

5.5. In addition, GMAC did not treat its customers fairly as a result of applying certain charges and fees to customers’ accounts that were unfair as they did not accurately reflect the additional cost of administering an account in arrears in breach of MCOB 12.4.1R and 13.3.1 R.

5.6. This resulted in some customers incurring excessive and unfair charges (i.e. charges that were not a reasonable estimate of the costs of the additional administration required as a result of the customer being in arrears) and accruing additional costs that could have been avoided had GMAC adopted a more flexible and fairer approach to arrears management tailored to the customer’s individual circumstances.

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The second of these five examples will follow in the next post.

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Link to Press Notice:

http://www.fsa.gov.uk/pages/Library/Communication/PR/2009/147.shtml

Link to Final Notice:

http://www.fsa.gov.uk/pubs/final/gmac_rfc.pdf

*MF*

The FSA - In Action - 2/5

This is the second of 5 posts, which relate to the FSA taking action against firms which they regulate.

I will offer little by way of comment, but will instead provide links in each case 1) to the FSA Press Notice involved and 2) to the "Final Notice" given by the FSA to the firms or individual involved.

In each of these 5 posts I will include highlighted extracts.

1: To illustrate why I hold the view that the OFT approach of setting a "threshold level" was too narrow.

2: To further illustrate that aspect by highlighting both the breadth and depth that the approach used by the FSA stands in comparison to the OFT - you will be able to judge the truth of that or otherwise for yourself

However - I do not want anybody to be misled in any way when I use extracts so I do urge you to use the links provided and read each item in full.

As you do so, you will find reference to some of the items I have commented on before - such as the high level "Principles" that the FSA apply to all those that they regulate, reference also to the powers granted under statute to the FSA, and lastly reference to the - activity related - "Conduct of Business" rules.

In each of these 5 posts we are looking at those "Principles" as they apply to all firms regulated by the FSA -and those "Conduct of Business Rules" as they apply to mortgages (MCOB)

However as you see how they are enforced by the FSA, just bear in mind (perhaps heavily) that those high level "Principles" do apply in the very same way to Banks, and everyone else authorised by the FSA - they are universal in their application.

And also bear in mind (again perhaps heavily) that banks do not escape similar, although not identical "Conduct of Business Rules" this time called "BCOBS".

You can find full details in the links for the full FSA Handbook I listed in an earlier post

*********************

Please read in full the Press Notice in this second example.

It involves Kensington Mortgage Company Limited who were fined £1.225 million for unfair treatment of some customers in arrears and will pay estimated £1.066 million customer redress.

Here however are some edited extracts:

The firm has agreed to redress customers who were in arrears and charged specific unfair and/or excessive charges. It is estimated that the redress will cost the firm up to £1.066 million.

The FSA has identified a number of serious failings by Kensington which occurred between 1 January 2007 and 31 October 2008 in relation to its mortgage arrears handling processes and in its dealings with customers in arrears.

Applying charges to customers' accounts that were unfair and/or excessive. These were:

A fee for a returned direct debit which was charged regardless of how many times the direct debit had already been returned unpaid;

An excessive fee for cancelled direct debits which did not reflect administrative costs;

Margaret Cole, director of enforcement and financial crime, said:

"This case should serve as a strong reminder to firms dealing with retail customers, especially customers in a vulnerable position such as those with mortgage arrears, that the FSA will take robust action where it sees that customers are not treated fairly. Retail firms which fail in their obligations to customers should expect not only a substantial fine but also that they will have to pay back customers who have been disadvantaged."

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Now, let's look at the "Final Notice" in this example.

Again, I ask that you read the item fully, but here are some edited extracts:

THE PENALTY

1.1. The FSA gave Kensington Mortgage Company Limited (“Kensington”/”the Firm”) a Decision Notice on 9 April 2010 which notified the Firm that pursuant to section 206 of the Financial Services and Markets Act 2000 ("the Act"), the FSA had decided to impose a financial penalty of £1.225 million on the Firm in respect of breaches of Principle 3 (Management and control) and Principle 6 (Customers’ interests) of the Principles for Businesses (“the Principles”) and Rules 12.3.1 R, 12.5.1 R and 13.3.1 R in the Mortgages and Home Finance: Conduct of Business sourcebook (“MCOB”) in the period between 1 January 2007 and 31 October 2008 (“the Relevant Period”).

2.1. The breaches of the Principles and MCOB Rules, which are described in more detail in section 4 below, relate to a number of serious failings by Kensington in relation to customers with a mortgage with the Firm who were in arrears.

2.3. Kensington breached Principle 6 during the Relevant Period in that it failed to pay due regard to the interests of certain of its customers and treat them fairly. In particular, the following failings were identified in that the Firm:

(3) did not have an appropriate cost-based approach to the calculation of certain charges and applied three charges to customers’ accounts that were unfair and/or excessive.

2.4. Kensington also breached MCOB 12.3.1 R, 12.5.1 R and 13.3.1 R in relation to the facts described at paragraph 2.3 above.

2.5. As a result of the breaches of Principles 3 and 6, Kensington failed to treat some of its customers fairly.

3.3. Kensington is an authorised person for the purposes of section 206 of the Act. A requirement imposed on a firm includes the Principles and Rules made under section 138 of the Act, which provides that the FSA may make such rules applying to authorised persons as appear to be necessary or expedient for the purposes of protecting the interests of consumers.

3.5. Principle 6 provides that:

A firm must pay due regard to the interests of its customers and treat them fairly.

3.7. MCOB 12.5.1 R provides:

A firm must ensure that any regulated mortgage contract , home reversion plan or regulated sale and rent back agreement that it enters into does not impose, and cannot be used to impose, excessive charges upon a customer.

4.17. The report contained the following section on (*) TCF:

“Everyone interviewed had an awareness of TCF. However, the call handlers’ ability to articulate what this meant within an arrears or repossessions environment was weak. Whilst it is acknowledged that call handlers operate within set mandates and procedures within which the fair treatment of customers is considered, a more detailed knowledge and understanding of how to apply TCF would be beneficial. This will enable call handlers to recognise when to refer customers whose circumstances may have TCF implications and fall outside of the established process.”

4.30. As a result of these failings, the Firm failed to treat certain of its customers fairly.

Arrears charges

4.31. During the Relevant Period, Kensington imposed a number of excessive or unfair charges on customers in arrears.

4.32. The excessive or unfair charges imposed by Kensington were:

(1) a fee for a returned direct debit which was charged on each re-presentation of the direct debit by the Firm regardless of the number of times it had already been returned unpaid;

(2) a fee for a cancelled direct debit, which was excessive in light of the associated administration costs;

4.33. The above charges were excessive or and/or unfair because they did not accurately reflect the actual administrative costs incurred by the Firm or were otherwise unfairly applied to the customer.

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(*) TCF - short for "Treating Customers Fairly" - an FSA requirement for all those authorised by them.

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The third of these five examples showing the FSA enforcing both their "Rules" and "Principles" will follow in the next post.

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Link for Press Notice:

http://www.fsa.gov.uk/pages/Library/Communication/PR/2010/065.shtml

Link for Final Notice:

http://www.fsa.gov.uk/pubs/final/kensington.pdf

*MF*

I have three more posts similar to those above to add to the blog.

They are repetitive in nature. I will not post extracts (as above) on here for that reason - but I will post the links to the last three items once they are added to the blog so that those interested can see the details for themselves.

For those reading these items. I should explain that since the blog was started last year, and before the Supreme Court decision, its existence and details have been made known to the FSA, the OFT, the Treasury Select Committee and others - including MSE Guy and Mike Dailly.

Contact with those bodies has continued as the blog has developed, and this week I issued a further series of e-mails to those bodies and this week added the FOS to the list.

Why the FOS, and only now?

In each of the above examples, and the ones I have yet to add to the blog, I am building a "body of evidence", which demonstrate the powers and effectiveness of the FSA, based not solely on the "Rules" which they enforce, but also on the "Principles" that they require to be followed by each party that they authorise.

Why is that important? Those that have a detailed knowledge of the recent Court ruling on the BBA case against the FSA over PPI - will know that s 150 of the Financial Services and Markets Act was central to the eventual ruling.

More importantly - in those legal arguments a hugely important distinction was drawn by the judge in that eventual ruling over the application of s 150 as it applied to the FSA and to the FOS. There is a difference - a crucial one - that separates the FSA and the FOS over issues of fairness and reasonableness - and that is where the blog is heading.

That distinction has a vital role to play in this whole matter of the fairness or otherwise of bank charges - and the "body of evidence" I am building in the blog will, I hope, play its part in having that distinction and its importance recognised.

Once I have completed the next set of posts - still painstakingly listing that evidence - I will then move onto an analysis of that Court ruling on PPI - and show its application to the question of bank charges.

I will post extracts here when they are posted on the blog.