Bank Charges: OFT Court Case Update (15/12/2008)
Throughout 2006 and early 2007, the number of consumers seeking refund of unauthorised overdraft charges applied to their current accounts rapidly increased to the stage where tens of thousands of individual claims were pending with County Courts across the country. In addition, the OFT has been investigating whether charges for unauthorised borrowing were fair, since 2006, in an attempt to determine whether the charges were fair, when assessed against different laws and regulations. The amount of cases and the inconsistent manner in which they were individually dealt with by the Banks and the Courts, increased the pressure on all parties to resolve the issues conclusively.
In order to keep you abreast of the latest developments regarding the Office of Fair Trading (OFT) Court Case and the OFT Report into the whether unauthorised overdraft charges are unfair, we have provided this recently updated fact-sheet. In addition, we regularly update details of the current status of the OFT High Court Case at www.victoryclaims.co.uk/oftupdate.html.
OFT High Court Case
As a result, on 27th July 2007, the OFT and the major high street Banks agreed to resolve the issues with a Test Case before the High Court. The result of this case will serve as a precedent affecting all claims for unauthorised bank charge refunds.
The High Court Test Case initial hearings between the OFT and the major high street Banks ended in late January 2008. Arguments were heard from both the OFT’s and the Banks’ barristers into whether the OFT has the right to determine whether the charges banks levy for unauthorised transactions are fair, by proposing conflicting interpretations of the Unfair Terms in Consumer Contracts Regulations 1999 (UTCCR) and more generally Penalties in Common Law.
The judge, Mr Justice Andrew Smith, announced on 24th April 2008 that current account unarranged overdraft charges are subject to the Unfair Terms in Consumer Contracts Regulations 1999 (UTCCR). This confirms that the OFT is legally empowered to decide whether Bank Charges are excessive and unfair under the UTCCR, although the OFT have yet to conclude their investigation. In addition, the Court ruled against the OFT on two minor issues, that Bank charges are not Penalties in Common Law and that Terms & Conditions were largely in plain, intelligible language. However, the most important ruling was in favour of the OFT, which is good news for consumers seeking a refund of charges.
Unfortunately for consumers, on 22nd May 2008, Justice Andrew Smith gave leave to the Banks to appeal the High Court decision relating to the UTCCR. In addition, the OFT was given leave to appeal the decision relating to historical terms under Penalties in Common Law. The appeals are expect to be heard before the Court of Appeal in November 2008, although further appeals to the House of Lords could extend through to 2009. In addition, the judge questioned the OFT on when the long awaited report into whether the charges are fair under the UTCCR, would be made public. The OFT stated that it would have concluded the report by December 2008.
On 7th July 2008, the High Court case continued to consider issues related to the 24th April ruling such as whether the OFT can review historic contracts, and the OFT outlined how it intends to continue with it’s investigation, given the High Court’s ruling that the OFT is able to determine whether the charges are fair. The judge was keen that all parties seek to resolve the case, and subsequent appeals, by the end of this year, although this may be subject to further delay as the case continues. Whilst the Banks were ready to proceed with appeals in August, it appears that the OFT requires additional time to prepare for an appeal against the April decision, and therefore the appeal is scheduled to be heard in November 2008.
In October 2008, minor hearings resolved that historic bank charges are subject to the UTCCR. The
Appeal hearings took place on 28th October 2008 and concluded on 5th November 2008. The case covered both current and historic charges. Whilst it is the judges’ prerogative, we expect the rulings to be announced in January-April 2009.
Due to this case brought by the OFT and in anticipation of the establishment of precedent, The Financial Services Authority (FSA) has issued a 'waiver' from its complaints handling rules that apply to unauthorised overdraft charges complaints, which banks may apply for. The Financial Ombudsman Service (FOS) has also announced that pending the outcome of the case it has put its own work on hold and the County Courts are not conducting further hearings into any Bank Charge cases.
Since the OFT announced its action against the banks in the High Court in July 2007, claims made to junior courts such as the District and County Courts, as well as the Financial Ombudsman Service (FOS) and to the Banks themselves are effectively on hold, waiting for the High Court’s decision to establish a precedent. As a result of the OFT High Court Case, and the waiver applied to other cases into unfair Bank Charges by the Her Majesties Courts Service (HMCS) and the Financial Services Authority (FSA), the Banks are only obliged the acknowledge the receipt of your claim and are not required to progress individual cases. On 22nd July 2008, the FSA announced that the waiver would be extended for a further six months, to allow for the conclusion of the case and appeals.
Currently, we believe the following situations are not affected by the waiver:
1. Charges made to a Credit Card Account
2. Those facing Financial Hardship (If you have had a change in circumstances which has resulted in you struggling financially)
What happens next?
The next provisional date for a hearing at the Appeals Court is 28th October 2008, when the Banks will contest the 24th April 2008 ruling that the OFT has the power to investigate the fairness of Bank Charges. The OFT is also required to publish a report into the fairness of Bank Charges, which it has been working on for over 2 years. A Market Study was published by OFT on 16th July 2008, which is now under consultation before the final report can be published. A copy of the Market Study can be downloaded from http://www.oft.gov.uk/shared_oft/reports/financial_products/OFT1005.pdf. The Appeal Courts’ ruling together with the OFT’s report, assuming it determines that the current level of charges are unfair, is required before clients such as you can receive refunds. We expect both the details of ruling and the report to be announced in December 2008 or January 2009.
Assuming the OFT’s Report and the Appeal Decision are positive and concluded in the expected timescales, client’s should expect to receive their refunds in January-May 2009, although a further Appeal is possible.
How do I keep informed about developments in the OFT High Court Case
Our Regulatory and Legal advisors are continuously monitoring the developments in the OFT High Court Case. We have predetermined our strategies, which will be implemented dependant upon the details of the decision and the precise wording of the ruling and subsequent appeals. We regularly update details of the current status of the OFT High Court Case at www.victoryclaims.co.uk/oftupdate.html.
If you need any further information about the your case, please call 0871 218 1206 or email claims@victoryclaims.co.uk.
Date Published: 15th December 2008
