The bad news for bank customers

Martin Hickman guides you through the Office of Fair Trading's decision on bank charges


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.

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

PROMOTED VIDEO
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Recruitment Genius: Compliance Assistant

    £13000 per annum: Recruitment Genius: This Pension Specialist was established ...

    Ashdown Group: Market Research Executive

    £23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...

    Recruitment Genius: Technical Report Writer

    £25000 - £35000 per annum: Recruitment Genius: A Technical Report Writer is re...

    MBDA UK Ltd: Indirect Procurement Category Manager

    Competitive salary & benefits!: MBDA UK Ltd: MBDA UK LTD Indirect Procurement...

    Day In a Page

    Isis hostage crisis: The prisoner swap has only one purpose for the militants - recognition its Islamic State exists and that foreign nations acknowledge its power

    Isis hostage crisis

    The prisoner swap has only one purpose for the militants - recognition its Islamic State exists and that foreign nations acknowledge its power, says Robert Fisk
    Missing salvage expert who found $50m of sunken treasure before disappearing, tracked down at last

    The runaway buccaneers and the ship full of gold

    Salvage expert Tommy Thompson found sunken treasure worth millions. Then he vanished... until now
    Homeless Veterans appeal: ‘If you’re hard on the world you are hard on yourself’

    Homeless Veterans appeal: ‘If you’re hard on the world you are hard on yourself’

    Maverick artist Grayson Perry backs our campaign
    Assisted Dying Bill: I want to be able to decide about my own death - I want to have control of my life

    Assisted Dying Bill: 'I want control of my life'

    This week the Assisted Dying Bill is debated in the Lords. Virginia Ironside, who has already made plans for her own self-deliverance, argues that it's time we allowed people a humane, compassionate death
    Move over, kale - cabbage is the new rising star

    Cabbage is king again

    Sophie Morris banishes thoughts of soggy school dinners and turns over a new leaf
    11 best winter skin treats

    Give your moisturiser a helping hand: 11 best winter skin treats

    Get an extra boost of nourishment from one of these hard-working products
    Paul Scholes column: The more Jose Mourinho attempts to influence match officials, the more they are likely to ignore him

    Paul Scholes column

    The more Jose Mourinho attempts to influence match officials, the more they are likely to ignore him
    Frank Warren column: No cigar, but pots of money: here come the Cubans

    Frank Warren's Ringside

    No cigar, but pots of money: here come the Cubans
    Isis hostage crisis: Militant group stands strong as its numerous enemies fail to find a common plan to defeat it

    Isis stands strong as its numerous enemies fail to find a common plan to defeat it

    The jihadis are being squeezed militarily and economically, but there is no sign of an implosion, says Patrick Cockburn
    Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action

    Virtual reality: Seeing is believing

    Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action
    Homeless Veterans appeal: MP says Coalition ‘not doing enough’

    Homeless Veterans appeal

    MP says Coalition ‘not doing enough’ to help
    Larry David, Steve Coogan and other comedians share stories of depression in new documentary

    Comedians share stories of depression

    The director of the new documentary, Kevin Pollak, tells Jessica Barrett how he got them to talk
    Has The Archers lost the plot with it's spicy storylines?

    Has The Archers lost the plot?

    A growing number of listeners are voicing their discontent over the rural soap's spicy storylines; so loudly that even the BBC's director-general seems worried, says Simon Kelner
    English Heritage adds 14 post-war office buildings to its protected lists

    14 office buildings added to protected lists

    Christopher Beanland explores the underrated appeal of these palaces of pen-pushing
    Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

    Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

    Scientists unearthed the cranial fragments from Manot Cave in West Galilee