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Consumer body slams charges

The Consumer Council has condemned the amount some banks charge for duplicate statements

The Consumer Council says bank charges of up to £10 a page for duplicate statements are "completely unjustified".

Details emerged after a caller to Radio Ulster's Nolan Show said that he had been charged £110 by First Trust Bank for an 11-page statement.

First Trust has defended the cost of the statement.

It said that customers were informed of the charge when they requested a duplicate.

The Consumer Council has released details of the amounts charged by other banks for duplicate statements.

The figures show a wide divergence.

The Bank of Ireland provides duplicates free of charge while the Northern Bank charges £6 per page requested.

The highest though is £10 per page charged by the First Trust - prompting the broadside from the Consumer Council.

"The Consumer Council is calling on the banks to play fair by their customers, especially during a time of recession," the Consumer Council's Alison Donnelly said.

DUPLICATE STATEMENT CHARGES
Abbey - £5 or £10 for multiple statements
Bank of Ireland - Free
Barclays - £5 per request
First Trust - £10 per page
Halifax - £5
Northern Bank - £6 per page
Ulster Bank - £10 per request
Nationwide - £5 for one statement, £10 for two or more
HSBC - Statements from less than one year ago - free. Older than one year £1 per statement with a maximum £10 fee
"They should be more open about what they charge for each of their services and at least make them clearer to customers before they are applied.

"However we believe charging their customers £10 per page for duplicate statements is excessive in the first place."

She also pointed out that customers could get the information in their statements using the Data Protection Act, which costs £10 per request.

However it can take up to 40 days to obtain.

Consumer body slams charges

The Consumer Council has condemned the amount some banks charge for duplicate statements

The Consumer Council says bank charges of up to £10 a page for duplicate statements are "completely unjustified".

Details emerged after a caller to Radio Ulster's Nolan Show said that he had been charged £110 by First Trust Bank for an 11-page statement.

First Trust has defended the cost of the statement.

It said that customers were informed of the charge when they requested a duplicate.

The Consumer Council has released details of the amounts charged by other banks for duplicate statements.

The figures show a wide divergence.

The Bank of Ireland provides duplicates free of charge while the Northern Bank charges £6 per page requested.

The highest though is £10 per page charged by the First Trust - prompting the broadside from the Consumer Council.

"The Consumer Council is calling on the banks to play fair by their customers, especially during a time of recession," the Consumer Council's Alison Donnelly said.

DUPLICATE STATEMENT CHARGES
Abbey - £5 or £10 for multiple statements
Bank of Ireland - Free
Barclays - £5 per request
First Trust - £10 per page
Halifax - £5
Northern Bank - £6 per page
Ulster Bank - £10 per request
Nationwide - £5 for one statement, £10 for two or more
HSBC - Statements from less than one year ago - free. Older than one year £1 per statement with a maximum £10 fee
"They should be more open about what they charge for each of their services and at least make them clearer to customers before they are applied.

"However we believe charging their customers £10 per page for duplicate statements is excessive in the first place."

She also pointed out that customers could get the information in their statements using the Data Protection Act, which costs £10 per request.

However it can take up to 40 days to obtain.

Banks will not have to deal with new complaints about unauthorised bank charges for another six months.

The Financial Services Authority (FSA) has extended the "waiver" on complaints about excessive overdraft charges because a test case is still going on.

The extension means the period of grace for banks will now end in January 2010.

Law Lords will rule on the latest stage of the test case in the autumn, but the legal battle is expected to continue for some time.

'Progress'

"Although the test case is progressing well, we still do not have certainty on this complex issue," said Dan Waters, director of retail policy and conduct risk at the FSA.

Our objective continues to be facilitating a fair and consistent resolution of consumer complaints about unauthorised overdraft charges."

This is the third time that the original waiver, first granted in the summer of 2007, has been extended.

All new claims against banks were effectively suspended in July 2007 when the Office of Fair Trading (OFT) and seven banks, along with the Nationwide building society, agreed to stage a test case to see if their controversial overdraft charges were legal or not.

Following a three-day appeal in the House of Lords in June, all parties are now waiting for their decision on whether to uphold the right of the OFT to regulate bank charges

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The Office of Fair Trading (OFT) will still pursue bank overdraft charges as unfair, even if it loses the current legal appeal in the House of Lords.

The threat was made by Jonathan Crow QC, for the OFT, on the final day of an appeal before five Law Lords.

Seven banks and one building society are trying to overturn two previous rulings that would let the OFT investigate their overdraft fees.

Jonathan Sumption QC, for the banks, ridiculed the OFT's concerns.

He said they were part of a " developing saga" which he suggested had no basis in law.

Worried

Mr Crow ended his submission to the Lords by pointing out that the OFT was not just concerned about the high cost of bank charges.

The OFT was, he said, also worried about the way bank accounts and their charges operated in practice.

"This relates to the interplay between the amount and the fact the customer does not truly consent to the charges," he said.

He argued that bank customers were at a disadvantage at two stages: when they first opened an account and when they triggered the overdraft fees.

He listed some of the problems that bank customers faced.

He argued that they typically did not study the terms and conditions of their accounts; had no opportunity to opt out of their contract with their bank; could not work out in advance when the fees might be imposed; would find they were triggered without an explicit request to the bank for an overdraft; and often happened by mistake.

"The OFT is concerned that banks are capitalising on a mistake," he said.

'True consent'

The Law Lords will now consider their judgement and may refer some issues to the European Court of Justice.
That would further delay a final judgement on the OFT's jurisdiction, in a legal process that started in July 2007.

At stake is the currently frozen ability of millions of customers to demand that their banks refund overdraft fees they consider too high.

For the banks, an adverse judgement could lead to them repaying billions of pounds in past charges, and foregoing income of more than £2bn a year.

Jonathan Sumption rejected the OFT's reasons for keeping its campaign against bank charges going, even if it lost the appeal.

He said it was "quite impossible" for the OFT to use the concept of "true consent" in any further action over bank charges without re-writing the European directive on unfair contract terms.

"True consent is simply not the method by which the directive seeks to give effect to consumer choice," he said.

Bargain

During the morning of the third day of the appeal, Mr Crow attacked the banks' claim that their charges were so central to the operation of current accounts that they fell outside the scope of the 1999 consumer contract regulations.

The issue at stake is whether or not these regulations, which derive from European legislation, allow the OFT to scrutinise bank charges.

The banks argue that as their overdraft fees are part of the price paid by customers for having a current account, then they necessarily fall outside the scope of the regulations.

But Mr Crow argued that when people opened a current account "overdraft charges are not what is being sold as part of the bargain".

He said the crucial distinction that meant the 1999 regulations did in fact apply to bank charges was that current accounts did not involve any free negotiation between customers and banks.

There was "no meaningful consent", he said.

He went on to argue that overdraft charges could only escape the regulations if they were central to the bargain between bank and customer; were readily recognisable as the price of the service to the customer; and arose in the normal operation of the contract.

None of these conditions applied, he argued.

"Penal" conditions

Mr Crow accused the banks of "cosmetically rewriting" their terms and conditions in the past couple of years to disguise the penal nature of their overdraft charges.

He said that most banks had rewritten their terms and conditions to remove any suggestions that consumers were not allowed to go overdrawn and would be penalised for doing so.

One that still does is the Nationwide building society.

He pointed out that its terms and conditions stated explicitly that a customer can be expelled from membership for running up an unauthorised overdraft.

How could having an unauthorised overdraft be a central feature of having a current account under these circumstances, he asked.

Mr Crow went on to warn the five Law Lords hearing the appeal not to be scared of some dire warnings issued earlier by Mr Sumption.

He said it should not be assumed that the banks' current policy, of providing free current accounts to people in credit, was doomed if their appeal failed.

The structure of current accounts might just need to be adjusted, Mr Crow said.
He denied that victory for the OFT implied there would be a deluge of litigation in other industries where cross-subsidies were common in pricing tariffs.

He also said it was "assuming a great deal" to suggest that banks might have to automatically make huge refunds to their customers if they lost the current appeal.

"Banks will not necessarily have to reimburse everything", he said.

"The domestic courts will have to sort out the consequences," he added.

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The House of Lords has been told that banks are not "Robin Hoods in reverse" when they levy overdraft fees.

Seven banks and the Nationwide Building Society have started their Appeal to stop the Office of Fair Trading (OFT) regulating their overdraft fees.

Jonathan Sumption QC claimed the banks were not taxing the overdrawn for the benefit of others.

However, he told the Law Lords that overdraft fees involved a large element of cross-subsidy.

The outcome of the hearing may decide if millions of bank customers are able to reclaim billions of pounds in past charges from their banks.

'Fairness'

Mr Sumption, for the banks, argued that existing consumer contract regulations did not give the OFT the power to regulate prices.

He said that bank overdraft fees were required to be clear but were not necessarily required to be fair.

The High Court and the Court of Appeal have both previously upheld the right of the OFT to scrutinise the fairness of bank charges under the 1999 Consumer Contract Regulations.

Mr Sumption said both of the lower courts had been wrong, and had both over-refined and overcomplicated the interpretation of the regulations.

He pointed out that the regulations were not designed as a mechanism of price control and were not aimed at regulating what services were offered or the price charged.

They did not, he argued, apply to the main subject matter of a contract or the price being charged for it - only to ancillary or contingent charges.

"The overdraft charges are too fundamental to the bargain to be declared unfair," he said.

Cross-subsidy

He told the five Law Lords hearing the appeal that overdraft fees involved a large element of cross-subsidy.

People who went overdrawn without permission were paying part of the cost of providing current accounts to people who always stayed in the black.

So the charges exceeded the cost of dealing with an overdrawn customer because "the revenue stream is essential to the whole of the current account structure".

Mr Sumption explained that cross-subsidies were common in the banking industries of other countries such as France, Canada, Australia and the US.

He said they were common in the charging structures of many other complex sets of services such as airline ticket prices or mobile phone tariffs and were not objectionable.

One of the Law Lords asked if it was the case that bank charges included a surcharge to subsidise those who did not go into the red.

Another Lord suggested overdrawn customers were being taxed for the benefit of others.

But Mr Sumption said it was "tendentious nonsense" to suggest that banks were operating as Robin Hoods in reverse.

He went on to say that a victory for the OFT might render all past overdraft payments unenforceable and might lead to "restitution".

"The OFT has significantly raised the stakes," he said. "The issues are of considerable importance to consumers and the future of retail banking."

Earlier rulings

Mr Sumption spent the rest of the day picking apart the earlier rulings by the High Court judge Mr Justice Andrew Smith and the three judges in the Court of Appeal.

In particular, he said the Appeal Court had been "fundamentally wrong" to draw a distinction in the regulations between essential terms and prices, which could not be scrutinised by the OFT, and non-essential or incidental terms and prices - such as overdraft fees, which could be regulated.

"The distinction between core and non-core prices have no place in the regulations," he said.

"No such distinction can be found in the language of the regulations. All prices are by their very nature essential as the contract cannot work if the price is unenforceable."

Mr Sumption went on to describe the Court of Appeal's approach as "opaque and impractical" which might lead to "absurd" conclusions.

"The courts are not authorised to treat some prices as inessential," he said.

The hearing is expected to finish on Thursday.

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Banks face an "appalling prospect" if the Office of Trading is allowed to rule that overdraft charges are unfair, the House of Lords has been told.

The banks would receive a deluge of litigation if the decision was made against them, the court has heard.

Five Law Lords are hearing an appeal by seven banks and one building society against judgements by two lower courts.

The lenders are challenging the right of the Office of Fair Trading to decide if overdraft charges are fair or not.

Prices

Jonathan Sumption QC, for the banks, said if the previous ruling in favour of the OFT was upheld, the banks would face a deluge of litigation with claims going back many years.

"That prospect is appalling," he said.

He said if the courts upheld the right of the OFT to scrutinise bank charges, then the charges might be deemed unenforceable for a time period dating all the way back to the 1990s.

That was because European Union regulations on unfair terms in consumer contracts had been introduced into UK law during that decade.

Alternatively, Mr Sumption argued, all personal current account contracts might become unenforceable in total.

At the core of the arguments is whether bank charges are exempt from the Unfair Terms in Consumer Contract Regulations (UTCCR) and whether the OFT can scrutinise or regulate the charges.

Mr Sumption argued that the price being paid by bank customers for the use of their overdrawn accounts was not something that fell under the above regulations.

"Does our case allow extortionate prices? Yes," he said.

"The remedy for extortionate prices lies in the domain of competition regulations, not in the domain of contract regulations."

'Consumer categories'

Mr Geoffrey Vos QC, for the Nationwide Building Society, supported the arguments of the banks.

In particular, he said, the Court of Appeal had been wrong in law to analyse the impact of overdraft charges from the point of view of consumers who stayed in the black.

He pointed out that of 54 million current account holders, 12.6 million paid overdraft fees in any one year.

That meant there were at least two categories of consumer - those who paid and those who did not pay overdraft fees.

"The typical consumer is one who pays, intends to pay, or expects to pay debit charges," said Mr Vos.

"The charges are clearly recognisable as the price for this service for the debit customers."

So, Mr Vos argued, the bank charges were necessarily exempt from the Unfair Terms in Consumer Contract Regulations (UTCCR) and the OFT could not scrutinise or regulate them.

'Consumer protection'

Mr Jonathan Crow QC, representing the OFT, spent the afternoon rejecting some of the assertions of Mr Sumption and outlining the case for the OFT.

He denied that the OFT was trying to conduct price control and said it was interested in consumer protection, which was the other side of the coin from the operation of competitive markets.

"We are looking at market failure because the consumers are not thinking about banking charges and banks can raise their charges without losing customers," he said.

He said there was no justification for the banks' suggestion that the OFT should use competition law rather than consumer contract regulations if it was worried about overdraft charges.

He pointed out that going to the Competition Commission was not a route available to ordinary consumer.

However, the consumer contract regulations did give consumers rights they could pursue in national courts.

Investigation goes on

Mr Crow went on to justify the OFT's intended use of the consumer contract regulations to scrutinise the fairness of bank overdraft charges.

"Price terms have not been given some kind of ring-fenced status," he said.

"Price clauses have not been carved out from the application of the regulations."

He went on to assert that overdraft terms could still be assessed for their fairness for reasons other than price, for instance if customers were taken by surprise.

He told the Law Lords that the OFT's current investigation into overdraft charges would continue even if it lost the current appeal.

"The OFT investigation will proceed irrespective of the outcome of this appeal because the relevant overdraft terms are still assessable to fairness," he said.

Mr Crow denied that a victory for the OFT in this appeal would lead to a disastrous upheaval for the UK's banking system.

He said the OFT was looking not only at the size of overdraft charges but how they were applied and how they affected customers. The OFT might, for instance, seek variation of bank interest rates associated with overdrafts.

The hearing is expected to end on Thursday.

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Almost one million people have had their claims for the return of their bank overdraft charges frozen since July 2007.
Figures obtained under the Freedom of Information Act (FoI) from the Financial Services Authority (FSA) reveal the scale of the backlog.

Nearly 973,000 complaints have been put on hold by the UK's banks, with nearly 27,000 stayed in the UK courts.
The figures were obtained by the consumer campaign group Legal Beagles.

"I am surprised - it's huge," said Nick Spooner of Legal Beagles.

"It's far more than I thought," he added.

Long process

When the volume of claims from disgruntled bank customers reached a crescendo in the summer of 2007, the authorities and the banking industry sought a joint solution.

The main banks and the Office of Fair Trading (OFT) agreed to start a High Court test case to resolve if bank charges were fair and legal.

In the meantime, the FSA allowed the banks and the Financial Ombudsman Service (FOS) to put any fresh claims on hold, with the judiciary also allowing county court judges to stay any new cases that were lodged in the courts by claimants.

The legal process has, however, taken far longer than originally anticipated.

After failing to overturn the OFT's jurisdiction in the matter at both High Court and Appeal Court level, the banks are now planning to appeal to the House of Lords later this year.

They wish to challenge the current High Court and Appeal Court rulings that the OFT, under the 1999 Unfair Terms in Consumer Contracts regulations, can decide if their overdraft fees are fair or not.

"Most of the claimants would have been aware at the time they complained that their complaints would have been automatically put on hold," said Mr Spooner.

"Surely the figure must represent the highest number of consumer complaints about a single issue?"

Next year?

The second stage of the litigation, which will decide the actual fairness or otherwise of the banks' charges, is unlikely to start before 2010.

The OFT recently said its own investigation into that point might not be to be finished until the end of this year.

That means some bank charge claimants might eventually have to wait for three years before being able to pursue their currently frozen claims.

"You could fill Wembley stadium ten times over with the people waiting on bank charges claims," said Which? lawyer Chris Warner.

"It's a huge issue and has to be settled as quickly as possible."

The banks have never admitted how many claims they settled before new cases were put on hold in the summer of 2007.

But estimates by the BBC, based on information from the banks' annual reports for 2007, suggested that in the course of that year, the banks paid out £784m to about 378,000 customers.

Many of these claims involved customers going to their local county courts, with the banks then typically settling and paying up, rather than running the risk of a local judge deciding that their charges were illegal.

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An investigation into the fairness of unauthorised overdraft charges will be narrowed to just three banks, the Office of Fair Trading has announced.

The OFT will concentrate on the terms and conditions set by Lloyds TSB, HSBC and the Clydesdale Bank in an attempt to speed up the investigation.

The investigation is running in parallel with a long-running legal test case on the same issue.

This legal case still involves seven banks and one building society.

In addition to Lloyds TSB, HSBC and the Clydesdale Bank, the other financial institutions involved in the case are Abbey, Barclays, RBS NatWest, HBOS (now part of Lloyds Banking Group) and Nationwide Building Society.

Key conditions

The OFT has already made it clear that its own investigations are likely to conclude that overdraft fees are unfair.

It may argue that the charges should therefore be reduced substantially from their current levels, which sometimes amount to more than £30 for bouncing a cheque.

But, as the investigation continues, the OFT said that the terms and conditions of three of the banks were representative of all of them and so it would be conducting a "more focused" inquiry.

"The investigation into the other banks' terms is merely on hold and the OFT has stressed that no banks' terms have been given a clean bill of health," an OFT spokesman said.

It expects to publish its findings on the fairness of overdraft charges by the end of the year.

The latest move by the OFT has been welcomed by supporters of both sides of the dispute.

"The OFT believe that by looking at a representative sample of bank terms and conditions, the investigation process will be streamlined and shortened," said a spokesman for the British Bankers' Association.

"The banks certainly welcome this initiative and we will continue to co-operate fully and constructively to the ongoing inquiry."

Louise Hanson, head of campaigns at the consumers' association Which?, said: "We are pleased that the OFT is doing whatever it takes to bring this saga to an end as quickly as possible.

"We welcome its assurances that all the banks are still within its sights and we remain confident that the unauthorised overdraft charges of all banks will be found to be unfair."

Test case

In the meantime, the long-running test case surrounding the issue reached a new stage this week when the banks were given permission by the House of Lords to appeal against a recent Appeal Court judgement on bank charges.

In March, the Appeal Court upheld a High Court decision that the fairness of overdraft charges could be investigated by the OFT.

The first stage of the litigation has already lasted for 18 months.

During this time nearly all new claims for the return of bank charges have been put on hold in the county courts and at the Financial Ombudsman Service.

Behind the scenes, both sides have been preparing their arguments for the eventual second round of court hearings, in which the fairness of bank charges will be decided.

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The UK's banks have been given permission by the House of Lords to appeal against a recent Appeal Court judgement on bank charges.

In March the Appeal Court upheld a High Court decision that the fairness of overdraft charges could be investigated by the Office of Fair Trading (OFT).

The latest move will extend the long-running legal test case over the fairness of bank charges.

The first stage of the litigation has already lasted for 18 months.

During this time nearly all new claims for the return of bank charges have been put on hold in the county courts and at the Financial Ombudsman Service.

Marc Gander of the Consumer Action Group (CAG) said he was not at all surprised by this latest development.

"We expect them to lose and when the process is finally exhausted we hope they will come quietly and return £30bn to the High Street," he said.

Rulings

Last year, Mr Justice Andrew Smith ruled in the High Court that the OFT had the power to scrutinise the fairness of bank charges, under the 1999 Unfair Terms in Consumer Contracts regulations.

The seven banks, along with the Nationwide building society, which were party to the test case with the OFT, appealed against the ruling.

However, their arguments were firmly rejected by three Appeal Court judges, led by the Master of the Rolls, Sir Anthony Clarke.

Handing down his judgement, he suggested the banks might be wasting their time taking the issue to the House of Lords because four judges had now come to the same conclusion.

The banks clearly did not agree.

Behind the scenes, both sides have been preparing their arguments for the eventual second round of court hearings, in which the fairness of bank charges will be decided.

The OFT has already made it clear that as a result of its own investigations it does consider that overdraft fees are unfair.

It may argue that the charges should therefore be reduced substantially from their current levels, which sometimes amount to more than £30 for bouncing a cheque.

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An appeal by eight banks, against a High Court ruling that a regulator can investigate the fairness of overdraft charges, has been thrown out.

The Appeal Court ruled that the Office of Fair Trading (OFT) has the power to investigate the issue of bank charges.

However, the banks have decided to appeal further to the House of Lords, against the appeal judges' advice.

Tens of thousands of claims currently on hold in the English and Scottish legal systems will stay frozen.

Banks continue fight

Sir Anthony Clarke, Master of the Rolls, dismissed the banks' appeal and told them they should now allow the OFT to decide whether their charges were fair or not.

He said four High Court judges had now come to the same conclusion on the issue of the OFT's jurisdiction.

However, the British Bankers' Association (BBA) said its members still disputed the decision of the High Court and now the Appeal Court.

"The banks continue to believe that the Regulations do not apply to these type of charges," a spokesman said.

"The banks will apply to the House of Lords for permission to appeal the Court of Appeal's decision.

"The banks will work with the OFT to ensure the next stages in the test case process are progressed as quickly as possible," he added

Unanimous decision

The banks had argued that their overdraft charges fell outside the scope of the 1999 Unfair Terms in Consumer Contracts regulations.

However, the three Appeal Court judges rejected this view.

"We have unanimously concluded that the application should be refused," said Sir Anthony.

"The issues should now be resolved by an OFT assessment of fairness," he added.

He refused the banks leave to appeal further, but they have decided to appeal directly to the House of Lords anyway.

Bank charges campaigners were delighted with the Appeal Court ruling.

Chris Warner, of the consumers' association Which?, said: "It is great to see the Court of Appeal being so unequivocal in their guidance to the banks that this is the end of the road."

"They should now let the OFT do its job. The banks have the right to appeal to the House of Lords but the Court of Appeal could not have been clearer that that is not the appropriate way to go forward," he added.

County courts

The litigation between the OFT and eight banks started in July 2007 and now looks likely to run into 2010.

If the OFT ultimately wins the case, several billion pounds could potentially be refunded to millions of bank customers.

Since the test case started, tens of thousands of claims for the return of overdraft charges have been frozen in the English and Scottish legal systems, waiting for a final decision on whether bank overdraft charges are fair or not.

In 2007, when the campaign for the return of overdraft charges was threatening to swamp the court system, the UK's banks were estimated to have repaid more than three quarters of a billion pounds to about 378,000 customers.

A further 65,000 claims are known to be on hold in the English county courts alone.

Sir Anthony Clarke said it was "sensible" that the stay on county court proceedings should remain in place until a final decision on fairness of bank charges was made.

All county courts have now been sent a letter to this effect, from the deputy head of Civil Justice in England & Wales, inviting local judges to continue the existing stays, until either the House of Lords or the OFT's investigation come to a conclusion.

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