The bad news for bank customers
Martin Hickman guides you through the Office of Fair Trading's decision on bank charges
Tuesday 22 December 2009
1) What did the OFT announce today?
The OFT says it won’t mount another legal challenge against the banks over unauthorised borrowing fees for current accounts, following its defeat against six banks and one building society at the Supreme Court last month.
2) Why did the OFT throw in the towel?
The watchdog says another legal challenge would probably fail because any court would use the reasoning handed down by the highest court of the land, that the charges cannot be assessed for fairness under the 1999 Unfair Terms in Consumer Contracts Regulations (UTCCR).
3) Is that very bad news for customers seeking refunds?
Yes, very bad news. The OFT’s legal challenge had been going on for two and half years and had won two cases - at the High Court and Appeal Court - and was the best chance of securing a legal victory against the banks.
4) So is the big consumer revolt against the charges over?
No. There are several chinks of light in the gloom of the OFT’s decision.
5) Are the banks going to lower charges?
Perhaps. The OFT says it will talk to the banks about lowering the charges over the next few weeks and will report its progress in March. The OFT has reminded the banks that the Government has threatened to legislate to resolve the charges unless banks act. The Consumer Affairs Minister, Kevin Brennan, underlined this threat in The Independent today. The Conservatives and Liberal Democrats are also aware of the electoral appeal of standing up for bank customers.
6) What are the other possibilities?
The OFT said that a legal challenge against the banks by an individual might succeed, because it would revolve around individual contracts and circumstances rather than generalities. The Supreme Court hinted that action against the banks might be possible under Regulation 5, rather than Regulation 6, which the OFT used. Regulation 5 states that charges should “not cause a significant imbalance to the detriment of the consumer.” Customers who pay fees cross-subsidise ‘free banking’ for customers in credit. This might be a "significant imbalance to the detriment of the customer”. Another challenge may be possible under the Consumer Credit Act, which states that banks must behave fairly.
7) What will happen to the one million claims on hold with the banks?
The banks are likely to start writing to customers rejecting those claims, citing the Supreme Court ruling.
8) Is there anything those million customers can do?
They could exercise their right to complain about their treatment – the rejection of their claims for refunds – by complaining to the Financial Ombudsman Service (FOS). FOS is a free and speedy service, but complainants must go through the complaints procedure of their bank first. It is the intention of Martin Lewis’s Moneysavingexpert site to publish template letters for the making of such claims to FOS in January.
9) Can the banks reclaim the refunds they have given?
No. The payments were discretionary. Financial providers never accepted liability, but paid out the sums as a gesture of goodwill.
10) Has the bank charges revolt failed?
The banks will feel that they have won by preventing mass payouts that would have run into billions of pounds. They have had their case upheld by the highest court in the land and their adversary, the OFT, has admitted defeat (in the test case at least). In this sense, the banks can be regarded as winners of the legal action.
But arguably customers have won the wider battle. Around £1bn was paid out in refunds before the launch of the OFT test case in July 2007 suspended individual action. Since then many banks have reduced their charges. Talks between the OFT and the banks may reduce them further. Individual litigants may yet prosper in the courts.
Had there not been a consumer revolt, the biggest for at least 20 years, none of this would have happened. Customers who have borrowed money without permission are, generally, better off than they would have been. For those who carefully manage their accounts never incurring charges, the picture is less clear. To make up for the loss of some fee income, banks are seeking to levy monthly charges on current accounts. Whether it was ever right for these generally wealthier customers to enjoy ‘free banking’ subsidised by generally poorer customers is another question. The worst off (and/or the feckless) are a bit better offer as a result of the bank charges revolt.
Donald MacInnes: 'I have to have £500 a month spare from now until at least 2035'
HSBC becomes first bank to offer five-year fixed rate mortgage with interest rate under 2%
Are finance apps stealing your personal data?
Crippling PFI deals leave Britain £222bn in debt
Pension freedoms: How to deal with cold calls from scammers
- 1 Rarest Beanie Baby bought for just £10 at car boot sale could be sold for £62,500 on eBay
- 3 Giorgio Armani criticises the way some gay men dress saying 'a man has to be a man'
If I’m being racially abused I don’t need a stranger with a saviour complex to rescue me
The only black face in the Ukip manifesto is on the page about overseas aid
Ukip is the only main political party to not address LGBT rights in its manifesto
Food banks: One million Britons will soon be using them, according to Trussell Trust
Religion isn't growing, it is becoming vigorous in its demise, says philosopher AC Grayling
BBC election debate: The one photo that summed up the whole 90-minute leaders debate
iJobs Money & Business
£60000 - £70000 per annum + benefits : Ashdown Group: A highly successful, glo...
£30 - 35k (DOE): Guru Careers: We are seeking a Pricing Analyst with experienc...
£24000 - £26000 per annum + benefits : Ashdown Group: A highly successful, glo...
£21000 - £24000 per annum: Ashdown Group: The Ashdown Group has been engaged b...
Day In a Page
This four-bedroom detached home comes with a double carport, useful workshop, garden and two walkways that offer views of the adjacent countryside.
With space for an equestrian business, a greenhouse for growing your own veg, a wine store and a gym; this five-bedroom home has all the ingredients for a country retreat.
This four-bedroom home has exposed brick chimneys and a vaulted ceiling in a breakfast room that's ideal for summer entertaining - the doors open to the patio and garden.
The decked roof terrace of this two-bedroom flat is perfect for summer drinks while large windows and ample storage space make for a light and spacious interior.
Surrounded by approximately 15 acres of grounds, this six-bedroom grade II-listed home has been extensively refurbished yet retains many period features.
This four-bedroom home comes with a two-bedroom cottage and commercial office, with planning to extend, in a stunning courtyard setting.
In a pretty Norfolk village, this four-bedroom family home is surrounded by landscaped gardens, with even a self-contained annex for guests.
A few miles from the seaside at Perranporth, this four-bedroom farmhouse sits amongst nine acres of idyllic grounds - including a lake and two barns used as holiday lets.
This five-bedroom home is arranged over three floors of a converted Victorian hospital, offering spectacular views of the Pentland Hills - only three miles from the city centre.
This four-bedroom detached home comes with grounds that span to approximately 2.5 acres, as well as two large patio areas and a double garage.
This four-bedroom cottage is a Grade II-listed town house, well-located for the thriving market town of Nailsworth.
A four-bedroom apartment on the ground floor of a stunning period property in North Yorkshire, with two kitchens and a large south-west facing garden.
This high-spec two-bedroom home is part of a smart collection of new flats at Beaufort Park and has a large decked balcony that's perfect for summer drinks.
Capitalise on the fabulous views of Trevone Bay by taking two homes and creating one spacious boutique B&B. Just a cliff-top walk from Padstow.
Overlooking a golf course, this six-bedroom Edwardian detached home spans four storeys and retains many period features including the original, operational servants' bells...
On the edge of the city, this six-bedroom home comes with an outdoor swimming pool and a large garage block that has annexe potential.
In a Grade II-listed manor just outside of Bath, this three-bedroom home is arranged on two floors with a skylight in a vaulted roof line.
Open the living room's bi-fold wooden doors to reveal a retro-style kitchen, and a conservatory leading to a paved garden at this three-bedroom home.
A Grade II-listed, four-bedroom home, in a charming Somerset village, with a two-storey studio that could be converted into a holiday cottage
A modern four-bedroom Victorian home, within walking distance to the high street
A luxury apartment in the Gothic mansion of Wyfold Court in Kingwood, offers six bedrooms spread over three floors and a turret
This school conversion, near Stockwell Tube, oozes New York loft style. The one-bedroom flat features double height ceilings and exposed brick work
This six-bedroom Georgian home is on three floors with open fireplaces, a two-oven Aga, an annexe, and cottage gardens with outbuildings and a car barn
High Crest House covers an impressive 9384sq ft, with almost three acres of grounds including a tennis court and summer house enclosed by electric gates
A six-bedroom farmhouse with separate accommodation in converted stables. Situated in the village of Church Aston, within walking distance to the market town
A two-bedroom flat with under-heated walnut floors and bespoke built-in storage. The Tube and Clapham Common are a short stroll away
A refurbished seven-bedroom townhouse with staff quarters, cinema room, superb gym, steam room and plunge pool
A minimnalist four-bedroom home designed to the highest spec, featuring glass walls and a kitchen space lit by a glass roof
Hibernate during winter and make your living during the summer at this busy guesthouse with panoramic sea views, in the village of Lynton
A four-bedroom penthouse next to the Tate with direct views of St Paul's from two floors of luxurious living space
A four-bedroom detached home surrounded by spacious gardens and woodland, close to New Pudsey
An 18th-century, three-bedroom home near Langstone Harbour built from ships beams with vaulted ceilings and wood burning stoves
A five-bedroom semi-detached home with a mix of period and modern features in a popular and convenient location
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
A boutique mews house, set around a central courtyard, with three bedrooms and a private roof terrace
A four-bedroom farm-conversion with three bathrooms and two reception rooms
A two-bedroom detached house with ensuite bathrooms and a sun-drenched decked terrace, £750,000
A modern and spacious two-bedroom, penthouse flat with two bathrooms in a prestigious development
A beautifully renovated five-bedroom terrace with three reception rooms and a courtyard garden, £700,000
A four-bedroom period house which has been extended to provide almost 2,500sq ft of living space, £675,000