Bank Charges: OFT Test Case Update
Last updated 25th November 2009
Latest News
On 25th November 2009, the Supreme Court (formally the House of Lords) ruled in favour of the Banks and against the OFT and consumers in the ongoing OFT Test Case relating to Bank Charges. This decision overturns the previous decisions of the High Court and Courts of Appeal and means that the OFT does not have the power to determine whether the charges for unauthorised overdraft transactions applied to current accounts are fair.
This decision from the Supreme Court was unexpected and comes as a disappointment for all working on the side of consumers. Our Regulatory and Legal advisors are considering the detail of the Supreme Court ruling and shall provide further details of the case and its implications for consumers in the near future.
Introduction
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 Bank Charges for unauthorised borrowing 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
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 2010. 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, and October 2008, minor hearings resolved that historic bank charges are subject to the UTCCR, and other issues relating to the Appeal. The Appeal Court hearings took place on 28th October 2008 and concluded on 5th November 2008. The case covered both current and historic charges.
On 26th February 2009, the Appeal Court ruled that the Office of Fair Trading (OFT) has the power to investigate whether charges for unauthorised transactions are unfair and excessive when assessed under the Unfair Terms in Consumer Contract Regulations (UTCCR), confirming the earlier ruling from the High Court. This paves the way for the OFT to conclude their investigation into whether Bank Charges are unfair and excessive.
In addition to the unanimous decision of the three Appeal Court Justices in favour of the OFT, Master of the Rolls Sir Anthony Clarke refused the Banks leave to appeal against the decision in the House of Lords. Whilst the Banks still have the right to request an appeal directly with the House of Lords, the fact that the third most senior judge in England & Wales has refused leave to appeal at this stage indicates that the judiciary believes the issues should be resolved by the OFT.
The fact that the Appeal Court has issued a unanimous decision in which they have refused leave to appeal, is a major success for the OFT and consumers. The Appeal Court ruling indicates to the Banks that they are unlikely to win this legal process and that they should begin to work with the OFT to bring speedy resolution to this case, allowing consumers to secure a refund of the Bank Charges they have incurred.
The OFT stated that it “welcomes the Court of Appeal's very clear confirmation today that the unarranged overdraft charging terms for personal current accounts can be assessed for fairness.” The OFT must now conclude and publish a report into the fairness of charges, which it has been working on since April 2007. The OFT stated that they are “…now analysing the implications of the judgment for our ongoing investigation. The OFT has already written to the banks with its provisional view on the fairness of the terms, setting out its concerns that they may be unfair. We expect to reach a final decision on fairness later this year.”
The Banks proceeded to request leave to appeal directly with the Law Lords, which was accepted on 1st April 2009. This means that the Law Lords will have the final decision on this case, with hearing taking place around 22nd June 2009. We were pleased that the hearing concluded before the summer recess, although the ruling may not be announced until after the House of Lords sits again in October.
As the Banks have appealed to the House of Lords, the case will be unlikely to be resolved this year. The OFT indicates their report will be concluded later this year, although they do not provide a clear timeframe. We therefore believe that despite the Appeal Court ruling, consumers are unlikely to receive a refund of charges until the end of 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 2009, the FSA announced that the waiver would be extended for a further six months, to allow for the conclusion of the case and appeals. We expect the waiver to be extended further as required, until the OFT Test Case, the OFT Report and all subsequent appeals have concluded.
What happens next?
On 25th November 2009, the Supreme Court (formally the House of Lords) ruled in favour of the Banks and against the OFT and consumers in the ongoing OFT Test Case relating to Bank Charges. This decision overturns the previous decisions of the High Court and Courts of Appeal and means that the OFT does not have the power to determine whether the charges for unauthorised overdraft transactions applied to current accounts are fair.
This decision from the Supreme Court was unexpected and comes as a disappointment for all working on the side of consumers. Our Regulatory and Legal advisors are considering the detail of the Supreme Court ruling and shall provide further details of the case and its implications for consumers in the near future.
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 Test 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 Test Case at www.victoryclaims.co.uk/oftupdate.html.
Bank Charges Update Line: 0844 745 2116Listen to an update 24 hours a day
Date Published: 25th November 2009
