The story so far…
It began on 27 March 2007, with an announcement from the Office of Fair Trading (OFT) that it would delve into the world of retail bank pricing, by conducting a formal investigation. This investigation is relevant for consumers across the UK.
The first stage of the investigation is an OFT Market Study. The second, is a test case in the High Court brought by the OFT in agreement with eight of the major players in the British retail banking system, to determine points of legal principle. The aim of the litigation is to ensure an “orderly, efficient and speedy process for resolution of the legal issues”.
The OFT Market Study
In April 2007, the OFT launched a study to consider the state of the market for personal current accounts. The study made some key findings, most notably (and perhaps unsurprisingly) that the personal current account market is not working to the full benefit of UK consumers. This came as a direct result of complexity in accounts pricing and a failure to make the pricing system transparent.
A lack of awareness and understanding as to what consumers are paying for, has long prevented consumers from getting a better deal and in turn, driving competition by account switching. While consumers remain stagnant, there is little incentive for the banks to price competitively. The OFT felt that the cycle needed to be broken if a better result was to be achieved for consumers.
The Test Case – OFT v Abbey National plc and Others
In July 2007 the OFT and several of the major UK banks (believed to make up around 90% of the retail banking market) entered into an agreement to bring a test case in the High Court. The purpose was to establish the legality of unauthorised overdraft charges levied by current account providers.
The major preliminary issue to be determined by the Court, was the question of whether such charges are subject to a test of fairness under the Unfair Terms in Consumer Contract Regulations 1999 (UTCCRs 1999).
The second legal issue was whether the banks’ terms and conditions are capable of being penalties and so unenforceable at common law.
On 24 April 2008 the Court handed down judgment in respect of the first preliminary hearing. It was held that terms of unauthorised overdraft charges to personal current accounts can be subject to a test of fairness under the UTCCRs 1999.
A further judgment followed more recently on 8 October 2008. It was held that historic (and non-mainstream) account unauthorised overdraft charges can also be subject to a test of fairness under UTCCRs 1999.
On the second issue, it was held that most of the banks’ unauthorised overdraft charges are not capable of being penalties at common law. The Court invited further submissions on this issue and further hearings will follow which will include hearings of the ongoing appeal by the banks.
The future
The next step will be for the OFT to address whether the banks’ respective unauthorised overdraft charges are fair. If the OFT and the banks are unable to resolve this between themselves, it may have to be dealt with using the court process. It is hoped that with co-operation from the banks, this will not be necessary.
The OFT has taken a proactive approach throughout the investigation and has worked effectively with the banks towards reaching a resolution. Each of the banks concerned has been made aware of the OFT’s position in respect of its particular terms and conditions. Therefore, the banks should be in no doubt as to how the OFT proposes to deal with the assessment of fairness and should now be considering their response to the OFT’s observations.
Progress?
Twenty months, one market study, several press releases and one test case later, we have a preliminary answer; both current and historic terms and conditions can be subject to an assessment of fairness under UTCCRs 1999.
The investigation should, the OFT believe, result in greater transparency in current account pricing, which will in turn enable active and informed customers to drive competition amongst the leading banks. The OFT is also hopeful that banks will operate within a self-regulatory framework, pre-empting the need for further intervention in the future.
The OFT is aiming to publish a further report in early 2009. The final report will contain a series of recommendations to the banking industry. If the recommendations are not followed, or the bank does not supply the OFT with satisfactory undertakings, the OFT will look to other means of implementing change. As stated above, this may involve further court action, or as an alternative, changes to the Banking Code or recommendations to the Government.
In July 2007, the FSA granted a waiver to several of the UK banks, which enabled them to put a hold on dealing with complaints. The waiver was renewed in July 2008 for a 6 month period. Claims submitted to the court are also being stayed for the time being. In the meantime, those consumers wishing to lodge complaints and whose complaints are currently being stayed, will have to wait patiently for the outcome of the investigation.
Kimberly Wells, Trainee Solicitor - DMH Stallard LLP
Email - kimberly.wells@dmhstallard.com
