MSE News: 'Free' banking system isn't working, says FSA

Alpine_Star

tifo wrote: »

Exactly my point.

For banks to exclude any assessment of charges under Reg 5(1) by using the exclusion of Reg 6(2) the agreement must be in plain english under Reg 7(1). This is how the test case proceeded and why the banks changed their terms and conditions during the case.

The new terms were assessed to be in plain english (or easy enough to understand) and thus the OFT could not take action under Reg 6(2) and 5(1). No historic terms were assessed, especially those during some charges.

As an example, some peoples charges may be from before July 2007 and the bank has sent them revised terms from the test case and current as applying to the charges. But if the accounts were closed before July 2007 or sold off then any terms before that never applied.

But the bank will still quote the test case and their charges having been judged as fair when in fact only the new terms were assessed.

I don't know how many ways I can say this. Historic terms WERE assessed, as I said, as far back as from 2001. Look at schedule B of the OFT's POC's as to precisely what terms were considered http://www.oft.gov.uk/OFTwork/markets-work/completed/personal/personal-test-case/personal-documents

And you've got it back to front - the Plain Intelligible Language test has no bearing on sec 5.1 and neither does 6.2.

tifo

Alpine_Star wrote: »

And you've got it back to front - the Plain Intelligible Language test has no bearing on sec 5.1 and neither does 6.2.

For a term to be precluded from assessment under Reg 5(1) it must be a core service under Reg 6(2) and in plain english under Reg 7(1).

This is why the banks argued that overdraft charges are a core subject matter with a fee for banking services. The terms were then assessed for plain english under Reg 7(1). They were found to be clear enough and thus a challenge under Reg 5(1) was ruled out by Reg 6(2). The court even said Reg 5(1) is a better route for consumers to take (maybe even the OFT).

Reg 6(2)(i) precludes assessment of a core subject matter and (ii) excludes the price paid for a service, PROVIDED the term being assessed is in plain intelligible language under Reg 7(1).

If a term can be challenged under Reg 5(1), for example the term is not easy to understand and so Reg 6(2) does not apply, then it is up to the bank to show under Reg 5(4) that the term was individually negotiated and Reg 5(2) does not apply.

It remains to be challenged by consumers that the term relating to overdraft charges was not individually negotiated and is not excluded by Reg 6(2) because it is not easy to understand. Not an easy task after the test case.

The court made it clear that this is not the end of matters. Though it looked at overdraft charges, the case was actually about whether the OFT had the power to rule these charges as unfair since the banks said they cannot do so.

Alpine_Star

tifo wrote: »

For a term to be precluded from assessment under Reg 5(1) it must be a core service under Reg 6(2) and in plain english under Reg 7(1).

This is why the banks argued that overdraft charges are a core subject matter with a fee for banking services. The terms were then assessed for plain english under Reg 7(1). They were found to be clear enough and thus a challenge under Reg 5(1) was ruled out by Reg 6(2). The court even said Reg 5(1) is a better route for consumers to take (maybe even the OFT).

Reg 6(2)(i) precludes assessment of a core subject matter and (ii) excludes the price paid for a service, PROVIDED the term being assessed is in plain intelligible language under Reg 7(1).

If a term can be challenged under Reg 5(1), for example the term is not easy to understand and so Reg 6(2) does not apply, then it is up to the bank to show under Reg 5(4) that the term was individually negotiated and Reg 5(2) does not apply.

It remains to be challenged by consumers that the term relating to overdraft charges was not individually negotiated and is not excluded by Reg 6(2) because it is not easy to understand. Not an easy task after the test case.

tifo

@ Alpine Star ... I won't bother replying to that ...

people can go and check the UTCCR and test case judgement themselves.

anon_ymous

ashcarrot wrote: »

A tax on silly people

Well it's not really a tax on silly people if we all have to pay because a few people can't control their money. Though if there was a tax on silly people, then yeah go for it

VT82

tagq2 wrote: »

Spending money is just transferring it to a different account at the same or another bank. Whichever, the same proportion of this automagically created money can be lent out again so there is a growth in the money supply - it's just limited by not being able to lend out all of it.

Assume regulatory need to keep 10% of its loans as deposits. Customer A deposits £100 into the system. Customer B wants a loan of £90. The system now has £190 in deposits but is owed £90. Customer C is allowed a loan up to £(0.9*190)-90 = £81, and the system now holds deposits of £271 and has loaned out £171. We recognise a geometric progression \sum_{n=1}^\infty ap^n with a=100, p=0.9, which has limit £900. This is, I'm guessing, where John_Pierpoint's approximation "by as much as 8 to 1" comes from.

Erm, what have you been smoking, and can I have some?

If Customer A deposits £100 and Customer B borrows £90, there are deposit liabilities of £100, loan assets of £90, and liquid assets of £10, not deposits of £190!

Are people getting confused with non-retail deposits? I.e. borrow £12.50 from Customer A, arrange through Alfred and Sons Brokers to borrow £77.50 from Gotham County Council, and lend £100 to Customer B? If so, they might be following a high-risk low retail funding strategy, but they're still not magicking money from nowhere.

They will have limits on the minimum amount of liquid assets they need to hold, but I think the confusion on the 'by as much as 8 to 1' issue comes about from the requirement for capital ratios.

For example:

(1) add up loss-absorbing capital (retained earnings, shares issued etc.)

(2) multiply asset balances by appropriate risk weightings (high weightings for commercial loans, low weighting for low loan-to-value residential mortgages, zero weighting for government debt etc.)

divide (1) by (2) and you want this to be as high as possible to be seen as a more secure bank. The ratio is usually around 12% for a building society (hence the 8 to 1?) but can be as low as 5% for a bank, although the regulators want this to get higher across the board. In other words, they lend out large multiples of their capital, but obviously not their deposits, as the only ones that can print money are the Bank of England.

Alpine_Star

tifo wrote: »

For a term to be precluded from assessment under Reg 5(1) it must be a core service under Reg 6(2) and in plain english under Reg 7(1).

No - the Supreme Court went out of it's way to say the opposite:

That issue is whether the Relevant Charges constitute “the price or remuneration, as against the services supplied in exchange” within the meaning of the Regulation. If they do not, the attack on the fairness of the terms that is open to the OFT will not be circumscribed by Regulation 6(2)(b). If they do, they will still be open to attack by the OFT on the ground that they are “unfair” as defined by Regulation 5(1), but that attack cannot be founded on an allegation that the Relevant Charges are excessive by comparison with the services which they purchase, for that is forbidden by Regulation 6(2)(b).

At paragraph 57 http://www.supremecourt.gov.uk/docs/uksc_2009_0070_judgmentV3.pdf

In other words the charges can still be open to question under 5.1 even if they are excluded by 6.2 and 7.1 - not on the grounds of the cost/price ratio but by virtue of the contract being ''contrary to the requirement of good faith, it causes a significant imbalance in the parties' rights and obligations arising under the contract, to the detriment of the consumer.''

A good example of where this principle was successfully applied is OFT v Ashbourne Management Services http://www.bailii.org/ew/cases/EWHC/Ch/2011/1237.html

John_Pierpoint

opinions4u wrote: »

This is a myth.

They raise deposits and lend those on. In fact the lend slightly less on, because they retain reserves. If every loan was the deposited in another bank and never spent, then there would be lending again against the original loan funds and a massive growth in the money supply. But people spend the money that they're lent. They buy houses and cars. The improve their homes. They get their breasts enlarged. They take holidays. They buy electrical goods. They don't stick the money in another bank for any significant period of time.

This. Over and over. Know what makes you money and exploit it. Know what costs you money and avoid it.

Fractional reserve banking and velocity of circulation is what dictates the effective money supply. OK the original fiat currency has to be "printed" in theory by a central bank somewhere but the bankers are really good at multiplying it up as long as there is "trust" in the system.

That "trust" evaporated in 2007/8, when it became self evident that some people had been living on the increasing value of their homes for 10 years and the money in those loans had gone to money heaven.

John_Pierpoint

TruckerT wrote: »

Being honest, I have to say that I have not read every post in this thread. But, over the years, I have fiercely exploited every loophole in the banking/credit card system...

Retail banking is an 'invisible' service/product, and, for most ordinary people, money is not a commodity

That's why it is so annoying when banks charge people for doing 'nothing wrong' - wheel clampers operate in a similar way

If you want to avoid getting clamped, then you will either have to pay to park, or be considerably inconvenienced by having to use public transport, or undertaking a longish walk

On the other hand, banks do themselves no favours by allowing so many dormant or near-dormant account-holders

I now have only three current bank accounts - one of them has been dormant for a year or more, and another was opened only last week, and so far has seen no transactions

Why would a bank allow a new customer to open an account, unless it is clear that he/she intends to use it?

TruckerT

Banks have been making good money over the years by purloining "dormant" accounts.
Now that the state has formalised the process the banks must be feeling the squeeze.

I have recently managed to cash a couple of life insurance policies with the Prudential, that had been dormant since the 1940's.
Very impressed. I also cashed in a post office savings book, with a last transaction of 1965.

I wonder how many banks could do the same given an old cheque book and a letter asking if any money had been left in the account?

Actually I agree with you that banks should be forced to write to account holders saying "send us (say) an authority to deduct £5" as you annual bank fee - but my bet is that they are enjoying the use of a free loan and would not want to rock the boat.

tifo

Alpine_Star wrote: »

No - the Supreme Court went out of it's way to say the opposite:

In other words the charges can still be open to question under 5.1 even if they are excluded by 6.2 and 7.1 - not on the grounds of the cost/price ratio but by virtue of the contract being ''contrary to the requirement of good faith, it causes a significant imbalance in the parties' rights and obligations arising under the contract, to the detriment of the consumer.''

And in my post I quoted this already .... The court said this is the way for consumers to go ....

If a term can be challenged under Reg 5(1), for example the term is not easy to understand and so Reg 6(2) does not apply, then it is up to the bank to show under Reg 5(4) that the term was individually negotiated and Reg 5(2) does not apply.

It remains to be challenged by consumers that the term relating to overdraft charges was not individually negotiated and is not excluded by Reg 6(2) because it is not easy to understand. Not an easy task after the test case.

The court made it clear that this is not the end of matters.