The banks have pulled level in the bank charges fight, but there’s at least one more round to go. Read all about where the contenders stand...
Time for an update on bank charges:
A re-cap of round one
Back in April the High Court ruled that the Office of Fair Trading is allowed to use the Unfair Terms in Consumer Contracts Regulations 1999 (UTCCR) to assess whether bank charges are fair. This means that Office of Fair Trading (OFT) can instruct, or put pressure on, the banks to stop penalty charges. It could also make it easier for people to reclaim previous charges. The banks, unsurprisingly, are appealing against this decision, and the appeal case is yet to be heard.
In the same ruling, the judge considered whether the charges were penalties under 'common law'. Common law is different to the UTCCR. Common law is law that has built up over the years through court rulings in individual cases. This makes it very different from ‘legislation’, such as the UTCCR. Legislation is law that comes from Parliament.
In contrast to the ruling on the UTCCR, the ruling on common law was in the banks' favour. The judge found that the banks' current terms and conditions did not contain penalties under common law. However, the judge did not at that time consider historical terms and conditions. As most banks have recently changed their terms and conditions to tighten them up against criticism, this meant another hearing was needed to assess historical penalties.
Given the total victory that consumers had with the UTCCR ruling, but the partial ruling against on common law, I consider that the first round was a victory for claimants. The score at that time was 2 - 1.
We've just had round two
However, that's old news. The new news is we had a second hearing in the summer and the judge has just now ruled. This second hearing was about whether historical (old) T&Cs contained penalty charges in common law. Remember, in the first ruling it was just current T&Cs that the judge ruled on.
Thankfully, this second ruling was a mere 33 pages, so I didn't get the haemorrhage I got reading the previous 119-page ruling! On the downside, the judge decided that historical T&Cs also didn't contain penalties under common law.
This ruling isn't surprising, however. The judge’s arguments and overall tone in the first ruling had already indicated his probable position. He has yet to rule on a few of the terms and conditions for a couple of the banks (Lloyds, Royal Bank of Scotland, and NatWest). Even so, I don't expect him to conclude any differently, so that's pretty much evened the score to 2 - 2.
This means we’ll have to await the third round: the appeal case regarding the UTCCRs, to find out where we stand.
My biggest concern
My biggest concern for claimants used to be whether the banks' silver-tongued, well-paid and extremely talented lawyers can sway the judge in the appeal case. I now have a greater concern.
The OFT is yet to decide whether it would rule that penalty charges are unlawful, even if it wins again the right to do so after the appeal hearing. Now, here's what the OFT said about bank charges recently (according to the BBC):
'We are progressing our investigation as quickly as possible and are in continuing discussion with the banks about our provisional views on the issue of fairness.'
I have suspected for some months from the way that the OFT has been handling its investigation that it has been very closely discussing the charges with the banks. However, this is not about discussion. There's no debate. No friendly three-course meals with port and claret necessary. This is an investigation and, ultimately, an interpretation of the law. Just the facts, ma’am.
This is ever a problem with Government departments, QUANGOs (to coin a dying acronym), and public, non Government-department bodies such as the OFT. The problem with all of them is that they are supposed to help one group, typically us, the public, but they usually help those that they're supposed to be keeping an eye on instead. That's because they are in contact with the groups they're 'watching' more than anyone else. How many times has the OFT called you to discuss your views? And yet the OFT talks to the banks.
The strongest voice (in this case, pretty much the only voice) is the one that sweet-talks, threatens, jokes and asks for the lunch bill. I don't know how much this is happening in this particular case. However, I previously described the idea of the OFT ruling that charges were fair as 'remote'. Now, my instincts tell me it's not as remote as I previously thought. But these are just instincts, not facts.
Why fight for those who've paid bank charges?
The Motley Fool is all about providing guidance for people of all financial positions in order to optimise your finances. We encourage you to do this in any way you can, provided it's lawful and not underhand. I hope that all Fool readers do better than non-Fool readers as a result.
On that basis - of optimising our finances as best we can within the law (more in this blog) - I've argued strongly in the past that the reason we should reclaim charges is purely that they are unlawful. Moral arguments on the one side and the loss of free banking argument on the other are irrelevant as far as the law is concerned.
However, I'm not inhuman, even if I am a financial writer. I do have an opinion on the moral side, so for a change I'd like to express it, even if I wouldn't use it as the basis of an argument for why we should reclaim charges.
The whole 'free banking' system relies on wealthier people paying nothing, or almost nothing, for their current accounts. Meanwhile, poorer people - a large minority of several million - support the whole thing through a spiral of charges on top of charges on top of charges. (Wealthier people get caught out occasionally, but that's immaterial.) My moral view is this totally stinks; I'd happily pay a modest monthly fee with the rest of the country if it put an end to this situation.
What now?
Enough sentimentality. Let me summarise the current position for you in four simple bullet points:
- The High Court has ruled that the OFT can assess whether charges are unfair and take action against the banks, but the banks have appealed this decision and we await the appeal hearing. Whether the OFT chooses to take action against the banks remains to be seen.
- The banks have almost totally closed one of the arguments - that the charges are unlawful penalties under common law. The charges could still be unlawful penalties under totally different law: the UTCCR.
- The FSA waiver remains in place, meaning people can’t at the moment reclaim charges but the banks can continue to charge them. Wealthier people continue to pay nothing for their current accounts.
- Only when all this is over will we know whether we can reclaim charges, and whether the banks will continue to charge us or scrap free banking.
> In Bank Charges Ruling Not Straightforward, you can read more about:
- What to do now if you’ve had previous charges.
- The previous judgment.
- The possible future outcomes for claimants after the appeal case.
> Compare current accounts. You might not find a nicer bank than your current one, but you’ll likely find a better deal.
