I was asked a question yesterday. It was asked by someone reading this blog, someone who I admire for her efforts at helping other people, and establishing a forum where ordinary people can share experiences and knowledge to help each other.
She asked me whether I would be submitting evidence to a current consultation being carried out by HM Treasury. This one. A new approach to financial regulation - Judgement, focus and stability. (Warning - it is 76 pages long, very detailed, and asks loads and loads of questions)
My answer? Very political - it was yes and no. You see for me I would like answers to simpler questions.
I think it was Robert Peston from the BBC who said that some of our larger Banks have a turnover far in excess of the whole economy of the UK. So why is it that - when I am only half awake, not yet had my first strong black coffee, - when my wife suddenly announces that we need milk for everyone's breakfast, - and that we have run out of toilet rolls - I arrive at the ATM to be told there are no bank notes available? Where is the consultation on that?
We are in many ways beseiged by consultations - all trying to find answers to very big questions:
How about this one? A call for evidence from BIS - Department for Business, Innovation and Skills - Consumer Rights Directive : Allowing Contingent or Ancillary Charges to be Assessed for Unfairness.
It's all about Bank charges, and it relates to the Supreme Court decision against the OFT - but does it deal with why there are no £10.00 notes in the ATM? Bet your life it doesn't! Nor does it answer my question to Lord Turner and the FSA - do you believe that the charges levied by Banks on their customers were and are fair or unfair?
Nor will you find an answer to my family's urgent need for milk and toilet rolls, nor my question to Lord Turner in this current consultation. It comes from the Independent Commission on Banking - Issues Paper - Call for Evidence. I misread that title at first, thought it said "Tissues Paper" - and thought yay, there is a Consultation that might give me an answer I need after all.
But no, that last consultation looks at some very big issues. You will hear those issues discussed often, Banks that are "too big to fail", should Banks be broken up - splitting the Investment banking from the Retail side of Banks, Narrow Banking, Utility Banks, etc etc.
Now, if unlike me and I believe most ordinary people, you need the day to day, minute by minute, services of a Global Investment Bank, and are not faced with the rather more simple problem of why there are no £10.00 notes in an ATM, or an answer about the fairness of Bank charges, then by all means please read every detail of those consultations.
But for me, and millions of ordinary people in the UK, right here, right now, I would just like Lord Turner and the FSA to answer my very simple question - do you believe that the charges levied by Banks on their customers were and are fair or unfair?
I now face a problem - I want you to keep reading this blog, but before I get to Test 3 and Test 4, I need to finish Test 2.
Perhaps your interest is waning somewhat - understandable. Why don't I just get to the point? Fair question. I could assure you that what I have to say is relevant, interesting, a "must read" - and yes, I do assure you it is all of those, but I am not sure that is sufficient to keep you here.
You like me, probably just want the answer to my question of Lord Turner and the FSA. Well, may I tell you once we get through Test 2, and Test 3 - you will get that very answer, because strangely it already exists.
The FSA have already given their answer - but we need to finish Test 2 and Test 3, and use the evidence that they will contain to show not just that it has indeed happened - but as importantly how it has already happened.
You see, I am not sure that Lord Turner or the FSA are even aware as I write that they regard the charges levied by Banks on their customers were and are unfair - yep, unfair, I will highlight and repeat that word just in case you missed it.
It will be evidence from within the very heart of the FSA that I will present in Test 4 that shows how they reached that conclusion.
Now, I already hear you asking - how could that be? How could it be that while the OFT took on three high profile Court appearances, and spent loads of your money and mine, lost, and then gave up, with no answer for anyone - how could it be that the FSA, our prime financial Regulator already knew and had the answer - at no cost to anyone? They just had to tell us, and instruct the Banks under the statutory powers they had - and insist that the Banks "treated customers fairly" - their highest level principle - how indeed could that be?
Ever watched Derren Brown, or indeed any magician? My absolute favourites are Penn and Teller - edgy! Well, all magicians use something called "misdirection". They manage to draw your attention away from what you should be looking at, and towards what they want you to see. That is what has happened over the issues of Bank charges. Everyone, and I do mean everyone that I have read or talked to, has been looking at the OFT and what they were doing, and nobody that I can trace, anywhere, has been looking at the FSA. Misdirection? I think so.
I will deal with closing Test 2 as quickly and as briefly as I can, and move through Test 3 again in as fast a time as I can manage - and as I do so I want you to remember that one word "misdirection", because it forms a major clue, not only over the issue of Bank charges, but also into the murkier world of the whole financial crisis - people looking in the wrong places, and not looking where they should have been looking.
Soon we will reach the final Test - Test 4.
Test 4 - Evidence, which must be irrefutable and unequivocal, that the Financial Services Authority expect charges to be a fair reflection of the additional administration costs faced, not a way to increase profits or offset costs from other parts of a business.
Thursday 30 September 2010
Wednesday 29 September 2010
Bank Charges - Test 2. Part 1.
I finished my last post "Test 1." with this:
Let's ask Lord Turner and the FSA this very simple question:
Do you believe that the charges levied by Banks on their customers were and are fair or unfair?
I am not quite finished with Test 1, you will see why shortly, but I want to move on to Test 2, which is:
Test 2 - Evidence that the Financial Services Authority have failed to meet the statutory obligations imposed on them by Parliament.
I also want to start to show how addressing this issue of Bank charges - by looking at the role of the FSA, not the OFT, - leads us into much murkier waters, namely those that led to the taxpayer bail out of some major Banks, and the higher taxes, cut backs, and job losses that we all now face in the UK. That also requires us to look at the role, and effectiveness of the FSA.
To do so, I want to stay in 2007, and introduce you to Dr. Thomas F. Heurtas, who in 2007 was the Director Wholesale Firms Division at the FSA. Today he is Banking Sector Director of the FSA, a role specifically created to enable the FSA to deliver the Tripartite authorities' initiatives to improve the regulatory architecture of the banking industry. You can read more about Dr Heurtas and his past experience here.
First let me again remind you that the FSA has statutory obligations imposed on it by Parliament, I listed the one that applies to consumers in an earlier post, but given the area I also want to look at over the banking crisis, let's see what statutory obligation the FSA were asked to meet:
There is actually not one, but two, which I believe are relevant, these:
market confidence - maintaining confidence in the financial system;
financial stability - contributing to the protection and enhancement of the UK financial system
Now, without me saying another word, how would YOU vote on the success of the FSA on achieving those two objectives, as you look around you today? Are you 100% confident in the financial system? Do YOU believe that we have financial stability?
As you answer those questions, perhaps you will begin to understand more fully why I am choosing to look at the role, and effectiveness of the FSA, not just on the single issue of bank charges (which let me assure you will remain the main focus of attention in this series of posts), but also looking at the FSA, and its effectiveness, from a much wider perspective.
Let's get to Dr Heurtas, and find what a Speech he gave on The Future of Retail Banking in the UK. might tell us. The Speech (as highlighted) was given at The Institute of Economic Affairs' 10th Anniversary Conference.
That Conference took place on the 6th of June 2007. Why do I want to emphasise that date? Well, as you read the extracts I will use and comment upon, and when as I very much urge you to do, you read the whole speech, I want to place Dr Heurtas' Speech in context.
Can you remember when the first queues of "depositors" started to appear outside Northern Rock? Maybe this BBC News item will remind you. It was September 2007, just three short months since Dr Heurtas gave his speech on "The Future of Retail Banking in the UK". They say a week is a long time in politics, looks very much like a few months is a long time in Banking!
I will return to that BBC News item later, to see what the FSA had to say about the solvency of Northern Rock - set against the statutory objectives that Parliament had asked the FSA to meet.
But first the speech. Maybe instead of asking the FSA " Do you believe that the charges levied by Banks on their customers were and are fair or unfair? ", we can add to the comments and extracts in Test 1, by seeing what Dr Heurtas had to say about "fairness" in his speech - and yes, about Banks treating their customers fairly.
Extracts (and my comments) start:
" ... From the perspective of the regulator, the future of retail banking in the UK should have three characteristics. First, it should be fair to consumers...."
" ... Assuring consumer protection is one of the statutory objectives of the FSA, and this is embodied in Principle 6 for authorised firms, "A firm must pay due regard to the interests of its customers and treat them fairly," as well as in the FSA's strategic objective to help retail consumers obtain a fair deal .."
" ... Under our Treating Customers Fairly initiative we have sought to illustrate this principle in more detail. Briefly put, we have stated that firms should put treating customers fairly at the heart of what they do, that they should bear in mind the requirement to treat customers fairly at every stage of the product life cycle, from the conception of the product design, distribution, marketing, advice and, when dealing with the customer post sale, service, including the handling of complaints, if any.
So far , so good, it is a clear and very powerful message. Would you agree it should leave the Banks in no doubt about what the FSA wanted?
But then we also get an even fuller picture of what the FSA ask of the Banks over fairness:
" ... In our view, Treating Customers Fairly should result in six outcomes for consumers: ..."
To avoid me making this post even longer than it is, please may I invite you to go to the link above for the Speech and see for yourself what those six outcomes were. In fact, for the purpose of this series of posts, please may I invite you to read the whole speech.
For me, I want to draw your very specific attention to one passage, and only that one specific passage, because for me it allows me to pass Test 2.
Test 2: Evidence that the Financial Services Authority have failed to meet the statutory obligations imposed on them by Parliament.
Remember I asked you when the first queues appeared outside the Northern Rock, and I chose to describe them, not as savers - I chose to describe them as "depositors"?
The reason lies in this one passage, two short sentences from the Speech by Dr Heurtas:
" ... We think that the obligation to treat customers fairly extends across all products that the bank sells, including deposits.
Technically, the FSA has "switched off" Principle 6 ("Treating Customers Fairly") with respect to deposits ..."
I think it best if I leave those words to sink in before I move on. There is a very big lesson to be learned, one that in drawing from the past, may allow us to alter the future. Who knows, we might even get an answer from Lord Turner and the FSA to my simple question of them. Or do you think the fact that they have never answered that simple question suggests they have "switched off" to whether Banks treat their customers fairly - not just over Bank charges, but on a whole lot more?
My next post will expand on the consequences of the time when the FSA openly chose to "switch off" their statutory obligations. You will see that it was not just switching off to "depositors" - it was to you, to Parliament, and to the country.
Let's ask Lord Turner and the FSA this very simple question:
Do you believe that the charges levied by Banks on their customers were and are fair or unfair?
I am not quite finished with Test 1, you will see why shortly, but I want to move on to Test 2, which is:
Test 2 - Evidence that the Financial Services Authority have failed to meet the statutory obligations imposed on them by Parliament.
I also want to start to show how addressing this issue of Bank charges - by looking at the role of the FSA, not the OFT, - leads us into much murkier waters, namely those that led to the taxpayer bail out of some major Banks, and the higher taxes, cut backs, and job losses that we all now face in the UK. That also requires us to look at the role, and effectiveness of the FSA.
To do so, I want to stay in 2007, and introduce you to Dr. Thomas F. Heurtas, who in 2007 was the Director Wholesale Firms Division at the FSA. Today he is Banking Sector Director of the FSA, a role specifically created to enable the FSA to deliver the Tripartite authorities' initiatives to improve the regulatory architecture of the banking industry. You can read more about Dr Heurtas and his past experience here.
First let me again remind you that the FSA has statutory obligations imposed on it by Parliament, I listed the one that applies to consumers in an earlier post, but given the area I also want to look at over the banking crisis, let's see what statutory obligation the FSA were asked to meet:
There is actually not one, but two, which I believe are relevant, these:
market confidence - maintaining confidence in the financial system;
financial stability - contributing to the protection and enhancement of the UK financial system
Now, without me saying another word, how would YOU vote on the success of the FSA on achieving those two objectives, as you look around you today? Are you 100% confident in the financial system? Do YOU believe that we have financial stability?
As you answer those questions, perhaps you will begin to understand more fully why I am choosing to look at the role, and effectiveness of the FSA, not just on the single issue of bank charges (which let me assure you will remain the main focus of attention in this series of posts), but also looking at the FSA, and its effectiveness, from a much wider perspective.
Let's get to Dr Heurtas, and find what a Speech he gave on The Future of Retail Banking in the UK. might tell us. The Speech (as highlighted) was given at The Institute of Economic Affairs' 10th Anniversary Conference.
That Conference took place on the 6th of June 2007. Why do I want to emphasise that date? Well, as you read the extracts I will use and comment upon, and when as I very much urge you to do, you read the whole speech, I want to place Dr Heurtas' Speech in context.
Can you remember when the first queues of "depositors" started to appear outside Northern Rock? Maybe this BBC News item will remind you. It was September 2007, just three short months since Dr Heurtas gave his speech on "The Future of Retail Banking in the UK". They say a week is a long time in politics, looks very much like a few months is a long time in Banking!
I will return to that BBC News item later, to see what the FSA had to say about the solvency of Northern Rock - set against the statutory objectives that Parliament had asked the FSA to meet.
But first the speech. Maybe instead of asking the FSA " Do you believe that the charges levied by Banks on their customers were and are fair or unfair? ", we can add to the comments and extracts in Test 1, by seeing what Dr Heurtas had to say about "fairness" in his speech - and yes, about Banks treating their customers fairly.
Extracts (and my comments) start:
" ... From the perspective of the regulator, the future of retail banking in the UK should have three characteristics. First, it should be fair to consumers...."
" ... Assuring consumer protection is one of the statutory objectives of the FSA, and this is embodied in Principle 6 for authorised firms, "A firm must pay due regard to the interests of its customers and treat them fairly," as well as in the FSA's strategic objective to help retail consumers obtain a fair deal .."
" ... Under our Treating Customers Fairly initiative we have sought to illustrate this principle in more detail. Briefly put, we have stated that firms should put treating customers fairly at the heart of what they do, that they should bear in mind the requirement to treat customers fairly at every stage of the product life cycle, from the conception of the product design, distribution, marketing, advice and, when dealing with the customer post sale, service, including the handling of complaints, if any.
So far , so good, it is a clear and very powerful message. Would you agree it should leave the Banks in no doubt about what the FSA wanted?
But then we also get an even fuller picture of what the FSA ask of the Banks over fairness:
" ... In our view, Treating Customers Fairly should result in six outcomes for consumers: ..."
To avoid me making this post even longer than it is, please may I invite you to go to the link above for the Speech and see for yourself what those six outcomes were. In fact, for the purpose of this series of posts, please may I invite you to read the whole speech.
For me, I want to draw your very specific attention to one passage, and only that one specific passage, because for me it allows me to pass Test 2.
Test 2: Evidence that the Financial Services Authority have failed to meet the statutory obligations imposed on them by Parliament.
Remember I asked you when the first queues appeared outside the Northern Rock, and I chose to describe them, not as savers - I chose to describe them as "depositors"?
The reason lies in this one passage, two short sentences from the Speech by Dr Heurtas:
" ... We think that the obligation to treat customers fairly extends across all products that the bank sells, including deposits.
Technically, the FSA has "switched off" Principle 6 ("Treating Customers Fairly") with respect to deposits ..."
I think it best if I leave those words to sink in before I move on. There is a very big lesson to be learned, one that in drawing from the past, may allow us to alter the future. Who knows, we might even get an answer from Lord Turner and the FSA to my simple question of them. Or do you think the fact that they have never answered that simple question suggests they have "switched off" to whether Banks treat their customers fairly - not just over Bank charges, but on a whole lot more?
My next post will expand on the consequences of the time when the FSA openly chose to "switch off" their statutory obligations. You will see that it was not just switching off to "depositors" - it was to you, to Parliament, and to the country.
Tuesday 28 September 2010
Bank Charges - Test 1.
In my last post I set out 4 Tests which I believe must be met to justify my belief that resolving the question of Bank charges being fair or unfair falls to Lord Turner and the FSA, not the OFT.
It is worth recording again that the eventual Supreme Court decision concluded that the OFT did not have a legal right to investigate whether such charges were fair or unfair.
The Justices did point out that there were alternative avenues which the OFT could continue to pursue, the OFT decided not to do so.
So with the OFT completely out of the picture, it does leave us with the inevitable question - what was, and what remains, the position of the FSA as regards fairness? Is it something they ignore or something they regard as fundamental, for themselves and for those they regulate - including the Banks?
Test 1: Evidence that the Financial Services Authority regard "Treating Customers Fairly" as fundamental.
Google these four words “FSA Treating Customers Fairly”. And yes, the myriad of hits you will receive will confirm that one of the highest level principles adopted by the FSA was the concept of “Treating Customers Fairly”. It is a principle they expect to find in every organisation they regulate - including Banks.
But for our purposes we need to be a bit more selective, and attempt to understand how they chose to apply that principle - or as you may discover - how the FSA chose to secure the application of that principle to everyone they regulated - except one very select group - yes, the Banks.
Might that be true? Might the FSA have adopted a key principle, one that in many ways underpinned their whole approach to regulation, one that insisted that customers should be treated fairly and then somehow let the Banks off the hook? We need to go back to 2007 to answer that question.
May I introduce Clive Briault to you? He had been, until his departure, the managing director of the FSA retail business unit, and prior to that had spent 18 years at the Bank of England. I wish to use extracts from a letter he wrote on the 9th of February 2007.
The letter was addressed to Mike Young, Independent Banking Code Review, c/o British Bankers Association, and was the FSA Submission to the 2007 Review of the Banking Code.
Let's take a quick detour to find out about the Banking Code, and the Banking Code Standards Board. You will find them here, or rather you won’t find them, because as you can see:
"The BCSB website has now been closed. On 1st November responsibility for the regulation of deposit and payment products transferred to the Financial Services Authority."
The 1st of November referred to on that closed site was the 1st of November 2009. That date could prove important.
- Just keep in mind - for now - when the Supreme Court decision was announced. You don’t remember? It was the 25th of November 2009. The FSA took up the reins of responsibility from the BCSB in advance of that decision, and without any knowledge of what that decision was eventually to be. That gap of 20 or so days has an importance I will explain later.
But first let’s address the time gap from 2007 until the direct involvement of the FSA in 2009. It’s time to read Mt Briault’s letter, and see what he said on behalf of the FSA, and what levels of “fairness” he, and the FSA expected from the Banks.
I have extracted some of his comments from the letter- it is there for you in that highlighted link to read it in its entirety.
Extracts (and my comments) start:
" ... Interaction between the FSA and the Banking Code
Our interest in the BC arises from all four of our statutory objectives, namely:
• Promoting public understanding of the financial system;
• Securing the appropriate degree of protection for consumers;
• Maintaining market confidence; and
• Reducing the extent to which financial institutions can be used for the purpose of financial crime...."
So (at that time) there are four statutory objectives - imposed on the FSA, set by Parliament.
Remember in an earlier post, I used the phrase “Mind the Gap”? See if you can spot it here.
" ... We are keen to ensure that the architecture governing the regulation of BC subscribers is coherent and risk-based, both to ensure that there are no 'gaps' in consumer protection …"
Bit obvious, perhaps, but have you ever considered that this whole issue of Bank charges is about “gaps”.
Gaps either left by regulators and/or Governments, and gaps through which ordinary people are left to fall, and suffer the consequences.
Bear in mind we have witnessed the OFT exit - stage left, leaving many millions of consumers a very big gap, a gap involving £Millions, and where neither what was fair or unfair has yet been found.
" ... We also have responsibility for applying certain standards derived from EU law, such as the Unfair Terms in Consumer Contracts Regulations 1999 ..."
UTCCR 1999? Hang on, wasn’t that the legislation the OFT were trying to use? And now we find the FSA also involved.
That brings us back to gaps again, doesn’t it? Remember in an earlier post I quoted Lord Turner as saying to the TSC, that between the FSA and the OFT there was “ a boundary which is not all that clear." Another gap for looking at later?
Let’s stick with Test 1, and look for this word “fairness” in Mr Briault’s letter.
" ... Principle 6 is of particular relevance to the BC Review. This states that ' a firm must pay due regard to the interests of its customers and treat them fairly'. This is the basis of our 'Treating Customers Fairly' (TCF) initiative. In our July 2006 publication 'Treating Customers Fairly – towards fair outcomes for consumers' we set out the six high-level outcomes that we are looking for firms to deliver when dealing with their customers. These outcomes will mean that consumers:
• deal with firms where the fair treatment of customers is a key part of the corporate culture;
• are marketed and sold retail products that have been designed to meet their needs and are targeted accordingly;
• receive clear information and are kept suitably informed before, during and after the point of sale;
• receive suitable advice which takes account of their circumstances;
• receive the product performance they have been led to expect by firms they deal with - and the service is both of an acceptable standard and as they have been led to expect;
• do not face unreasonable post-sale barriers imposed by firms when they want to change product, switch provider, submit a claim or make a complaint.
On its own I think that allows me to say Test 1 is passed, the FSA had their high level principle and it had been communicated to the Banks - and it was all about "Treating Customers Fairly".
But! Yes, isn't there always a but?
Mr Briault points it out in his letter:
" ... You will note some similarity to the key commitments within the BC, but there are two key differences, one of coverage and one of application:
• On coverage, the absence of an over-arching fairness objective within the BC is a significant omission.
• On application, our impression is that, in any case, little weight is placed on the commitments when monitoring and enforcing the BC, with the result that subscribers may not always follow the 'spirit' of the BC...."
So we find that the FSA were clearly aware of, and highlighting “ a significant omission” in the Banking Code and it was on this specific question of “fairness”.
Perhaps worse still, it looks like the FSA had also gained the impression that “ …little weight is placed on the commitments when monitoring and enforcing the BC, with the result that subscribers may not always follow the 'spirit' of the BC...."
Am I being fair if I say - in one letter we seem to have the FSA being very clear about what they expect from Banks on the question of fairness, and yet noting that the actual Code says nothing about fairness, and that even if it did, they seem to suspect it may well be ignored in practice? That would surely put the FSA on their guard, as the principal custodian of a statutory obligation to secure protection for consumers?
Have we found yet another gap? One so vast there is nothing but complete silence?
Please read that letter in full - Do YOU think Mr Briault on behalf of the FSA gave a clear picture to the Banks of what the FSA wanted on this question of fairness?
Now please think of all the media coverage over Bank charges, the letters to the FOS, the Court activity, the discussions in Parliament, the recent manifestos for the Election etc etc. Have you noticed what body has never said what they think about the fairness or unfairness of Bank charges?
Why do YOU think 3 years on from that letter, with the OFT nowhere to be seen, the FSA have had nothing to say about whether the Banks have treated their customers fairly, and still have not a word to say?
Surely with a high level principle that "Customers should be treated fairly" the FSA should have something to say? Have YOU ever heard anything from them about Bank charges being fair or unfair? Did they say anything 3 years ago, 2 years ago, 1 year ago, are they saying anything now, today?
Not about the waiver, not about the OFT, not about the Supreme Court decision, the FSA just require to give a very simple answer to a very simple question - based on their fundamental principle that customers should be treated fairly.
Let's ask Lord Turner and the FSA this very simple question:
Do you believe that the charges levied by Banks on their customers were and are fair or unfair?
While they consider that question - I think I need to introduce you to Dr. Thomas F. Huertas, and I will in my next post.
It is worth recording again that the eventual Supreme Court decision concluded that the OFT did not have a legal right to investigate whether such charges were fair or unfair.
The Justices did point out that there were alternative avenues which the OFT could continue to pursue, the OFT decided not to do so.
So with the OFT completely out of the picture, it does leave us with the inevitable question - what was, and what remains, the position of the FSA as regards fairness? Is it something they ignore or something they regard as fundamental, for themselves and for those they regulate - including the Banks?
Test 1: Evidence that the Financial Services Authority regard "Treating Customers Fairly" as fundamental.
Google these four words “FSA Treating Customers Fairly”. And yes, the myriad of hits you will receive will confirm that one of the highest level principles adopted by the FSA was the concept of “Treating Customers Fairly”. It is a principle they expect to find in every organisation they regulate - including Banks.
But for our purposes we need to be a bit more selective, and attempt to understand how they chose to apply that principle - or as you may discover - how the FSA chose to secure the application of that principle to everyone they regulated - except one very select group - yes, the Banks.
Might that be true? Might the FSA have adopted a key principle, one that in many ways underpinned their whole approach to regulation, one that insisted that customers should be treated fairly and then somehow let the Banks off the hook? We need to go back to 2007 to answer that question.
May I introduce Clive Briault to you? He had been, until his departure, the managing director of the FSA retail business unit, and prior to that had spent 18 years at the Bank of England. I wish to use extracts from a letter he wrote on the 9th of February 2007.
The letter was addressed to Mike Young, Independent Banking Code Review, c/o British Bankers Association, and was the FSA Submission to the 2007 Review of the Banking Code.
Let's take a quick detour to find out about the Banking Code, and the Banking Code Standards Board. You will find them here, or rather you won’t find them, because as you can see:
"The BCSB website has now been closed. On 1st November responsibility for the regulation of deposit and payment products transferred to the Financial Services Authority."
The 1st of November referred to on that closed site was the 1st of November 2009. That date could prove important.
- Just keep in mind - for now - when the Supreme Court decision was announced. You don’t remember? It was the 25th of November 2009. The FSA took up the reins of responsibility from the BCSB in advance of that decision, and without any knowledge of what that decision was eventually to be. That gap of 20 or so days has an importance I will explain later.
But first let’s address the time gap from 2007 until the direct involvement of the FSA in 2009. It’s time to read Mt Briault’s letter, and see what he said on behalf of the FSA, and what levels of “fairness” he, and the FSA expected from the Banks.
I have extracted some of his comments from the letter- it is there for you in that highlighted link to read it in its entirety.
Extracts (and my comments) start:
" ... Interaction between the FSA and the Banking Code
Our interest in the BC arises from all four of our statutory objectives, namely:
• Promoting public understanding of the financial system;
• Securing the appropriate degree of protection for consumers;
• Maintaining market confidence; and
• Reducing the extent to which financial institutions can be used for the purpose of financial crime...."
So (at that time) there are four statutory objectives - imposed on the FSA, set by Parliament.
Remember in an earlier post, I used the phrase “Mind the Gap”? See if you can spot it here.
" ... We are keen to ensure that the architecture governing the regulation of BC subscribers is coherent and risk-based, both to ensure that there are no 'gaps' in consumer protection …"
Bit obvious, perhaps, but have you ever considered that this whole issue of Bank charges is about “gaps”.
Gaps either left by regulators and/or Governments, and gaps through which ordinary people are left to fall, and suffer the consequences.
Bear in mind we have witnessed the OFT exit - stage left, leaving many millions of consumers a very big gap, a gap involving £Millions, and where neither what was fair or unfair has yet been found.
" ... We also have responsibility for applying certain standards derived from EU law, such as the Unfair Terms in Consumer Contracts Regulations 1999 ..."
UTCCR 1999? Hang on, wasn’t that the legislation the OFT were trying to use? And now we find the FSA also involved.
That brings us back to gaps again, doesn’t it? Remember in an earlier post I quoted Lord Turner as saying to the TSC, that between the FSA and the OFT there was “ a boundary which is not all that clear." Another gap for looking at later?
Let’s stick with Test 1, and look for this word “fairness” in Mr Briault’s letter.
" ... Principle 6 is of particular relevance to the BC Review. This states that ' a firm must pay due regard to the interests of its customers and treat them fairly'. This is the basis of our 'Treating Customers Fairly' (TCF) initiative. In our July 2006 publication 'Treating Customers Fairly – towards fair outcomes for consumers' we set out the six high-level outcomes that we are looking for firms to deliver when dealing with their customers. These outcomes will mean that consumers:
• deal with firms where the fair treatment of customers is a key part of the corporate culture;
• are marketed and sold retail products that have been designed to meet their needs and are targeted accordingly;
• receive clear information and are kept suitably informed before, during and after the point of sale;
• receive suitable advice which takes account of their circumstances;
• receive the product performance they have been led to expect by firms they deal with - and the service is both of an acceptable standard and as they have been led to expect;
• do not face unreasonable post-sale barriers imposed by firms when they want to change product, switch provider, submit a claim or make a complaint.
On its own I think that allows me to say Test 1 is passed, the FSA had their high level principle and it had been communicated to the Banks - and it was all about "Treating Customers Fairly".
But! Yes, isn't there always a but?
Mr Briault points it out in his letter:
" ... You will note some similarity to the key commitments within the BC, but there are two key differences, one of coverage and one of application:
• On coverage, the absence of an over-arching fairness objective within the BC is a significant omission.
• On application, our impression is that, in any case, little weight is placed on the commitments when monitoring and enforcing the BC, with the result that subscribers may not always follow the 'spirit' of the BC...."
So we find that the FSA were clearly aware of, and highlighting “ a significant omission” in the Banking Code and it was on this specific question of “fairness”.
Perhaps worse still, it looks like the FSA had also gained the impression that “ …little weight is placed on the commitments when monitoring and enforcing the BC, with the result that subscribers may not always follow the 'spirit' of the BC...."
Am I being fair if I say - in one letter we seem to have the FSA being very clear about what they expect from Banks on the question of fairness, and yet noting that the actual Code says nothing about fairness, and that even if it did, they seem to suspect it may well be ignored in practice? That would surely put the FSA on their guard, as the principal custodian of a statutory obligation to secure protection for consumers?
Have we found yet another gap? One so vast there is nothing but complete silence?
Please read that letter in full - Do YOU think Mr Briault on behalf of the FSA gave a clear picture to the Banks of what the FSA wanted on this question of fairness?
Now please think of all the media coverage over Bank charges, the letters to the FOS, the Court activity, the discussions in Parliament, the recent manifestos for the Election etc etc. Have you noticed what body has never said what they think about the fairness or unfairness of Bank charges?
Why do YOU think 3 years on from that letter, with the OFT nowhere to be seen, the FSA have had nothing to say about whether the Banks have treated their customers fairly, and still have not a word to say?
Surely with a high level principle that "Customers should be treated fairly" the FSA should have something to say? Have YOU ever heard anything from them about Bank charges being fair or unfair? Did they say anything 3 years ago, 2 years ago, 1 year ago, are they saying anything now, today?
Not about the waiver, not about the OFT, not about the Supreme Court decision, the FSA just require to give a very simple answer to a very simple question - based on their fundamental principle that customers should be treated fairly.
Let's ask Lord Turner and the FSA this very simple question:
Do you believe that the charges levied by Banks on their customers were and are fair or unfair?
While they consider that question - I think I need to introduce you to Dr. Thomas F. Huertas, and I will in my next post.
Monday 27 September 2010
Bank Charges - Back to the Future?
So far, I have avoided deliberately any comments on the role of the OFT. Why?
Because I believe that we need to concentrate, not on the role of the OFT, but on the role of the FSA to resolve this question of fairness in the matter of Bank charges. I have long ago concluded that resolving the issue fell directly under the control of Lord Turner and the FSA.
Now it is one thing to hold an opinion on something, it is an entirely different matter to establish "beyond all reasonable doubt" that the opinion is validated by evidence, that is what I will now attempt to do.
First therefore what would constitute evidence that would justify my opinion "beyond all reasonable doubt"?
I think it needs to meet a minimum of three criteria, but for good measure I have chosen four :
Let's call them the four crucial Tests:
Test 1 - Evidence that the Financial Services Authority regard "Treating Customers Fairly" as fundamental.
Test 2 - Evidence that the Financial Services Authority have failed to meet the statutory obligations imposed on them by Parliament.
Test 3 - Evidence that the Concordat agreed between the Financial Services Authority and the Office of Fair Trading established the basis for real consumer detriment and serious regulatory failings.
Last, but very very far from least ...
Test 4 - Evidence, which must be irrefutable and unequivocal, that the Financial Services Authority expect charges to be a fair reflection of the additional administration costs faced, not a way to increase profits or offset costs from other parts of a business.
The evidence that will follow meets those criteria and passes each of those tests - and more. They will also lead to other issues where consumer detriment has arisen due to very similar and very serious regulatory and political failures. The questions over Bank charges are important in themselves, but will also point the way to other similar issues.
But do we we need to go back a bit in time? Not only to help us understand the present, but also as an essential basis for understanding and preparing for the future. A future where the role and scope of banking is already under the microscope, and where any failure on the part of Governments and regulators to get it right, once again leaves ordinary individuals to pay a heavy price, in taxes, in cut backs and in jobs. It is the present we all now face, and understanding the past which brought us here, may allow us to change the future.
The next items of evidence I intend to present, therefore, are intended to offer evidence against Test 1. It will start in 2007, with a review of the Banking Code ... and the FSA's involvement in that review.
What did the FSA say to the Banks about being fair to their customers?
Because I believe that we need to concentrate, not on the role of the OFT, but on the role of the FSA to resolve this question of fairness in the matter of Bank charges. I have long ago concluded that resolving the issue fell directly under the control of Lord Turner and the FSA.
Now it is one thing to hold an opinion on something, it is an entirely different matter to establish "beyond all reasonable doubt" that the opinion is validated by evidence, that is what I will now attempt to do.
First therefore what would constitute evidence that would justify my opinion "beyond all reasonable doubt"?
I think it needs to meet a minimum of three criteria, but for good measure I have chosen four :
Let's call them the four crucial Tests:
Test 1 - Evidence that the Financial Services Authority regard "Treating Customers Fairly" as fundamental.
Test 2 - Evidence that the Financial Services Authority have failed to meet the statutory obligations imposed on them by Parliament.
Test 3 - Evidence that the Concordat agreed between the Financial Services Authority and the Office of Fair Trading established the basis for real consumer detriment and serious regulatory failings.
Last, but very very far from least ...
Test 4 - Evidence, which must be irrefutable and unequivocal, that the Financial Services Authority expect charges to be a fair reflection of the additional administration costs faced, not a way to increase profits or offset costs from other parts of a business.
The evidence that will follow meets those criteria and passes each of those tests - and more. They will also lead to other issues where consumer detriment has arisen due to very similar and very serious regulatory and political failures. The questions over Bank charges are important in themselves, but will also point the way to other similar issues.
But do we we need to go back a bit in time? Not only to help us understand the present, but also as an essential basis for understanding and preparing for the future. A future where the role and scope of banking is already under the microscope, and where any failure on the part of Governments and regulators to get it right, once again leaves ordinary individuals to pay a heavy price, in taxes, in cut backs and in jobs. It is the present we all now face, and understanding the past which brought us here, may allow us to change the future.
The next items of evidence I intend to present, therefore, are intended to offer evidence against Test 1. It will start in 2007, with a review of the Banking Code ... and the FSA's involvement in that review.
What did the FSA say to the Banks about being fair to their customers?
Friday 24 September 2010
Bank Charges - Evidence Item 1 - Examined - Part 2
I ended my last post by suggesting that an answer to the question of fairness over Bank charges could be found under the direct control of Lord Turner and the FSA.
Do I have any evidence for that opinion? And if it is in any way true, why was it not acted upon? Let's look again at the discussions between Lord Turner and the Treasury Select Committee - it reveals part of the answer, but not the whole answer, that takes a bit more digging to find the evidence.
For now, lets see what role the FSA did play. It relates to them issuing a waiver, which allowed all complaints to the Financial Ombudsman Service (FOS), or any Court actions, to be held in abeyance. It also stopped dead in its tracks what had been happening previously when many of those who had already complained had been paid monies back. It was a not insignificant power - wielded by the FSA. It was something that showed the clear and effective powers the FSA held directly in this matter.
That was what was alluded to by Lord Turner when he said this:
" ...One immediate consequence of that from the FSA point of view is that the FSA had put in place a waiver for firms so that they did not have to deal with complaints about unauthorised overdraft charges in the time specified under our dispute resolution rules. We had been doing that because we felt that there was no purpose in a flow of complaints before there was legal certainty one way or another as to what the situation was, but that waiver has effectively ceased today; it was clearly linked to this decision and the moment that there was legal clarity that falls away...."
Like me, given my last post, you might question what "legal clarity" Lord Turner was referring to. It was true that the OFT had been ruled against, but given the powers demonstrated by the FSA over waivers in this area - was there a role for them, as the FSA, and not the OFT?
Let's look for clarity, but not legal clarity, just some guidance and clarity on the respective roles of the OFT and the FSA.
Lord Turner said this:
" ... It is the case, of course, at the moment that the law in relation to the responsibility for things which are in an overdraft position gives responsibility to that to the OFT because that forms a consumer credit product of which we are not the direct regulator. We are in the slightly odd position of being the regulator of deposit taking but not the regulator of credit extension."
It would be apt at this juncture to ask what "law" Lord Turner is referring to, but I want to leave that aspect until later. Let's just go with Lord Turner accepting that overall he finds himself in a "slightly odd position". I don't know about you, but for me that is not the clarity I was hoping for.
What else did Lord Turner add:
" ... As I say, the actual structure of bank charges, particularly as they relate to a credit extended, any category of unsecured credit actually falls to the OFT rather than us. Since we took on a statutory responsibility for deposit taking conduct of business—we have been responsible for that since 1 November—the credit extension side sits with the OFT. Clearly, we do however have a responsibility for making sure that complaints are fairly dealt with. I think this is an area where we will have to see how the OFT wants to proceed."
Now, I wonder if again that apparent division of responsibilities takes us back to the "law" mentioned earlier, but what can be deduced is that whilst the OFT are doing one thing, the FSA are doing another thing, namely ensuring that complaints are fairly dealt with, so allied with the powers of waiver the FSA remain directly involved, because whatever is involved in this whole issue, complaints over unfairness lie at the heart of it.
If you are still with me, you will remember we are looking for the "clarity" Lord Turner said existed. So let's look again at what Lord Turner also added:
" ...I think we have always said that there is an issue about the appropriate divide in responsibility in relation to credit products. We have always been wary of suggesting that the FSA should be responsible for all consumer credit because, of course, that extends to things which are not extended by financial institutions to the whole of, for instance, in-store credit. On the other hand, clearly there is an issue where you have one product which the Supreme Court has decided from a pricing point of view ought to be seen as a total package where, if somebody goes from being £5 in credit to £5 in debit, at the moment, the way in which the law works, the responsibility for making sure that the terms and conditions are reasonably explained et cetera switches from us to the OFT and that clearly is a boundary which is not all that clear."
See what I see at all? We have apparently gone from "clarity" to "a boundary which is not all that clear".
Visit London and you will not be unfamiliar with the warning "Mind the Gap!", maybe that is a warning that might apply in this instance as well. It is something I will return to in very great detail later, because those words from Lord Turner, for me, hold one of the main clues to this whole issue, and reveal why there was a serious regulatory failing.
First however I want to go back in time to look at the relationship that the FSA, not the OFT, has with Banks - and in particular how in the past the FSA, again not the OFT, may have commented on the question of "fairness". We need a starting point in all of this, and this session of the Treasury Select Committee involving both Lord Turner and Hector Sants from the FSA is not it.
What is, and what has been, the role of the FSA as it applies to Banks and how the Banks treat customers? That will be the next item of evidence.
Do I have any evidence for that opinion? And if it is in any way true, why was it not acted upon? Let's look again at the discussions between Lord Turner and the Treasury Select Committee - it reveals part of the answer, but not the whole answer, that takes a bit more digging to find the evidence.
For now, lets see what role the FSA did play. It relates to them issuing a waiver, which allowed all complaints to the Financial Ombudsman Service (FOS), or any Court actions, to be held in abeyance. It also stopped dead in its tracks what had been happening previously when many of those who had already complained had been paid monies back. It was a not insignificant power - wielded by the FSA. It was something that showed the clear and effective powers the FSA held directly in this matter.
That was what was alluded to by Lord Turner when he said this:
" ...One immediate consequence of that from the FSA point of view is that the FSA had put in place a waiver for firms so that they did not have to deal with complaints about unauthorised overdraft charges in the time specified under our dispute resolution rules. We had been doing that because we felt that there was no purpose in a flow of complaints before there was legal certainty one way or another as to what the situation was, but that waiver has effectively ceased today; it was clearly linked to this decision and the moment that there was legal clarity that falls away...."
Like me, given my last post, you might question what "legal clarity" Lord Turner was referring to. It was true that the OFT had been ruled against, but given the powers demonstrated by the FSA over waivers in this area - was there a role for them, as the FSA, and not the OFT?
Let's look for clarity, but not legal clarity, just some guidance and clarity on the respective roles of the OFT and the FSA.
Lord Turner said this:
" ... It is the case, of course, at the moment that the law in relation to the responsibility for things which are in an overdraft position gives responsibility to that to the OFT because that forms a consumer credit product of which we are not the direct regulator. We are in the slightly odd position of being the regulator of deposit taking but not the regulator of credit extension."
It would be apt at this juncture to ask what "law" Lord Turner is referring to, but I want to leave that aspect until later. Let's just go with Lord Turner accepting that overall he finds himself in a "slightly odd position". I don't know about you, but for me that is not the clarity I was hoping for.
What else did Lord Turner add:
" ... As I say, the actual structure of bank charges, particularly as they relate to a credit extended, any category of unsecured credit actually falls to the OFT rather than us. Since we took on a statutory responsibility for deposit taking conduct of business—we have been responsible for that since 1 November—the credit extension side sits with the OFT. Clearly, we do however have a responsibility for making sure that complaints are fairly dealt with. I think this is an area where we will have to see how the OFT wants to proceed."
Now, I wonder if again that apparent division of responsibilities takes us back to the "law" mentioned earlier, but what can be deduced is that whilst the OFT are doing one thing, the FSA are doing another thing, namely ensuring that complaints are fairly dealt with, so allied with the powers of waiver the FSA remain directly involved, because whatever is involved in this whole issue, complaints over unfairness lie at the heart of it.
If you are still with me, you will remember we are looking for the "clarity" Lord Turner said existed. So let's look again at what Lord Turner also added:
" ...I think we have always said that there is an issue about the appropriate divide in responsibility in relation to credit products. We have always been wary of suggesting that the FSA should be responsible for all consumer credit because, of course, that extends to things which are not extended by financial institutions to the whole of, for instance, in-store credit. On the other hand, clearly there is an issue where you have one product which the Supreme Court has decided from a pricing point of view ought to be seen as a total package where, if somebody goes from being £5 in credit to £5 in debit, at the moment, the way in which the law works, the responsibility for making sure that the terms and conditions are reasonably explained et cetera switches from us to the OFT and that clearly is a boundary which is not all that clear."
See what I see at all? We have apparently gone from "clarity" to "a boundary which is not all that clear".
Visit London and you will not be unfamiliar with the warning "Mind the Gap!", maybe that is a warning that might apply in this instance as well. It is something I will return to in very great detail later, because those words from Lord Turner, for me, hold one of the main clues to this whole issue, and reveal why there was a serious regulatory failing.
First however I want to go back in time to look at the relationship that the FSA, not the OFT, has with Banks - and in particular how in the past the FSA, again not the OFT, may have commented on the question of "fairness". We need a starting point in all of this, and this session of the Treasury Select Committee involving both Lord Turner and Hector Sants from the FSA is not it.
What is, and what has been, the role of the FSA as it applies to Banks and how the Banks treat customers? That will be the next item of evidence.
Bank Charges - Evidence Item 1 - Examined.
I left Item 1 of the Evidence I wish to present to stand alone, and provided the link to the source of that item. I did so because in using extracts to make comments on what was said I do not wish my comments to be seen as out of context in any way - it is essential that anyone reading this Blog is able to independently verify the accuracy or otherwise of my comments
That said I now intend to use extracts from the exchange of comments between Lord Turner and John Mcfall.
In his opening remarks Lord Turner used these words:
Lord Turner of Ecchinswell: "Obviously, the Supreme Court has found in favour of the banks' arguments this morning that the overdraft charges are not assessable for fairness under the Unfair Terms in Consumer Contracts Regulations 1999 and that effectively means that people do not have a basis of complaint on the grounds that these charges are unfairly high ..."
I regard those comments as accurate, but then does a change happen when later this question is asked by John McFall? The following question:
Q3 Chairman: Should we just write off past bank charges and focus on the future then?
In his reply, Lord Turner says this:
" ... I think that it is clearly the case that the argument about whether these charges in the past can be deemed to be unfair, which is probably the basis of most of the complaints that have been brought forward, has been definitively resolved by the Supreme Court ..."
Now, can you see a difference? Have we moved from a position where the Supreme Court ruled that the OFT could not assess charges, to one where whether charges were unfair has been definitively resolved by the Supreme Court?
If like me, you see that difference, then what are its implications? That in part is what this Blog is all about. I believe they open up not only the question of fairness, but of serious regulatory failure.
But first, lets resolve the issue. What did the Supreme Court rule? Was it that the OFT could not investigate, or was it that the charges were not unfair?
I could at this point use, in detail, the actual Supreme Court Judgement, I will do in a later post, but it is easier on this one point to use a Press Summary issued by the Court.
Source of Extract:
http://www.supremecourt.gov.uk/docs/uksc_2009_0070_ps.pdf
Extracts start:
This appeal involved a relatively narrow issue. The Supreme Court had to decide not whether the banks’ charges for unauthorised overdrafts were fair but whether the OFT could launch an investigation into whether they were fair.
Extracts continue:
JUDGMENT
The Supreme Court unanimously allowed the appeal by the banks.
REASONS FOR THE JUDGMENT
Lord Walker made clear that the scope of the appeal was limited – the court did not have the task of deciding whether or not the system of charging current account customers was fair, but whether the OFT could challenge the charges as being excessive in relation to the services supplied in exchange (Paragraph 3). As Lord Phillips stated, even if such a challenge was not possible, it might still be open for the OFT to assess the fairness of the charges according to other criteria (Para 61).
Extracts end:
************************
If like me, you read those extracts you will see what the Supreme Court decided - it was NOT that bank charges were fair or unfair, it was a narrower issue of whether the OFT could make an assessment of fairness.
That, for me and many like me, leaves open the question of whether the charges were fair or unfair, it was not definitively decided as Lord Turner, and many many others have concluded.
*******************
That said I now intend to use extracts from the exchange of comments between Lord Turner and John Mcfall.
In his opening remarks Lord Turner used these words:
Lord Turner of Ecchinswell: "Obviously, the Supreme Court has found in favour of the banks' arguments this morning that the overdraft charges are not assessable for fairness under the Unfair Terms in Consumer Contracts Regulations 1999 and that effectively means that people do not have a basis of complaint on the grounds that these charges are unfairly high ..."
I regard those comments as accurate, but then does a change happen when later this question is asked by John McFall? The following question:
Q3 Chairman: Should we just write off past bank charges and focus on the future then?
In his reply, Lord Turner says this:
" ... I think that it is clearly the case that the argument about whether these charges in the past can be deemed to be unfair, which is probably the basis of most of the complaints that have been brought forward, has been definitively resolved by the Supreme Court ..."
Now, can you see a difference? Have we moved from a position where the Supreme Court ruled that the OFT could not assess charges, to one where whether charges were unfair has been definitively resolved by the Supreme Court?
If like me, you see that difference, then what are its implications? That in part is what this Blog is all about. I believe they open up not only the question of fairness, but of serious regulatory failure.
But first, lets resolve the issue. What did the Supreme Court rule? Was it that the OFT could not investigate, or was it that the charges were not unfair?
I could at this point use, in detail, the actual Supreme Court Judgement, I will do in a later post, but it is easier on this one point to use a Press Summary issued by the Court.
Source of Extract:
http://www.supremecourt.gov.uk/docs/uksc_2009_0070_ps.pdf
Extracts start:
This appeal involved a relatively narrow issue. The Supreme Court had to decide not whether the banks’ charges for unauthorised overdrafts were fair but whether the OFT could launch an investigation into whether they were fair.
Extracts continue:
JUDGMENT
The Supreme Court unanimously allowed the appeal by the banks.
REASONS FOR THE JUDGMENT
Lord Walker made clear that the scope of the appeal was limited – the court did not have the task of deciding whether or not the system of charging current account customers was fair, but whether the OFT could challenge the charges as being excessive in relation to the services supplied in exchange (Paragraph 3). As Lord Phillips stated, even if such a challenge was not possible, it might still be open for the OFT to assess the fairness of the charges according to other criteria (Para 61).
Extracts end:
************************
If like me, you read those extracts you will see what the Supreme Court decided - it was NOT that bank charges were fair or unfair, it was a narrower issue of whether the OFT could make an assessment of fairness.
That, for me and many like me, leaves open the question of whether the charges were fair or unfair, it was not definitively decided as Lord Turner, and many many others have concluded.
My next post will question some of the other remarks by Lord Turner, and they may lead us to where an answer is found to this question of fairness, not within the compass of the OFT (as was suggested by Lord Phillips might still be possible), but directly under the control of Lord Turner and the FSA.
Bank Charges - Item 1 - Lodged into evidence.
In my last post I said that the comments between Lord Turner (Chairman of the FSA) and John McFall (Chairperson of the TSC) was, for me, of singular importance.
In this post I will log that discussion, and let it stand alone. It will be an item of evidence to which will return more than once.
In my next series of posts I will explain why I believe it has the importance I attach to it.
LORD TURNER OF ECCHINSWELL AND MR HECTOR SANTS
25 NOVEMBER 2009
Q1 Chairman: Good afternoon and welcome to this evidence session on the FSA Annual Report. Would you introduce yourselves formally for the record, please.
Lord Turner of Ecchinswell: Adair Turner, Chairman of the FSA.
Mr Sants: Hector Sants, Chief Executive of the FSA.
Q2 Chairman: For the first 20 minutes, I want to focus on comments about HBOS and bank charges and then we will move on to the other aspects, if you do not mind. On the issue of bank charges, as we know, the Supreme Court this morning seemed to have found in favour of the banks and I wonder what you think will happen next. We were discussing with the OFT about whether you should continue to use the courts as a way to challenge bank charges or whether other approaches may be more productive.
Lord Turner of Ecchinswell: Obviously, the Supreme Court has found in favour of the banks' arguments this morning that the overdraft charges are not assessable for fairness under the Unfair Terms in Consumer Contracts Regulations 1999 and that effectively means that people do not have a basis of complaint on the grounds that these charges are unfairly high. One immediate consequence of that from the FSA point of view is that the FSA had put in place a waiver for firms so that they did not have to deal with complaints about unauthorised overdraft charges in the time specified under our dispute resolution rules. We had been doing that because we felt that there was no purpose in a flow of complaints before there was legal certainty one way or another as to what the situation was, but that waiver has effectively ceased today; it was clearly linked to this decision and the moment that there was legal clarity that falls away. Looking forward, I think that it is obviously important that we have a regime where people are clearly informed and clearly understand the nature of these charges. The attitude of the Supreme Court is that it is reasonable for the banks to see the thing as a total package. The OFT will be clearly thinking about its next steps and we will have to wait to see what they intend to do. It is the case, of course, at the moment that the law in relation to the responsibility for things which are in an overdraft position gives responsibility to that to the OFT because that forms a consumer credit product of which we are not the direct regulator. We are in the slightly odd position of being the regulator of deposit taking but not the regulator of credit extension.
Q3 Chairman: Should we just write off past bank charges and focus on the future then?
Lord Turner of Ecchinswell: I think it is not the case that there can be no basis for complaints from the past and individuals may have to look at this because, for instance, if they think they were misinformed in the past, then that may be the basis of a complaint, but I think that it is clearly the case that the argument about whether these charges in the past can be deemed to be unfair, which is probably the basis of most of the complaints that have been brought forward, has been definitively resolved by the Supreme Court and I think that probably the priority for the authorities and the priority for society is to get a basis going forward which is seen as a good product, clearly explained and well understood by consumers.
Q4 Chairman: The Government have said that they will work with the OFT and yourselves so that a new framework for fairer bank charges can be implemented going forward. I would like to know what timescale you think there could be for that and will you be looking at the way in which bank charges are structured as part of your treating customers fairly procedures?
Lord Turner of Ecchinswell: As I say, the actual structure of bank charges, particularly as they relate to a credit extended, any category of unsecured credit actually falls to the OFT rather than us. Since we took on a statutory responsibility for deposit taking conduct of business—we have been responsible for that since 1 November—the credit extension side sits with the OFT. Clearly, we do however have a responsibility for making sure that complaints are fairly dealt with. I think this is an area where we will have to see how the OFT wants to proceed.
Q5 Chairman: Do you think that you could assume responsibility for credit? Do you feel that it is in your interests?
Lord Turner of Ecchinswell: I think we have always said that there is an issue about the appropriate divide in responsibility in relation to credit products. We have always been wary of suggesting that the FSA should be responsible for all consumer credit because, of course, that extends to things which are not extended by financial institutions to the whole of, for instance, in-store credit. On the other hand, clearly there is an issue where you have one product which the Supreme Court has decided from a pricing point of view ought to be seen as a total package where, if somebody goes from being £5 in credit to £5 in debit, at the moment, the way in which the law works, the responsibility for making sure that the terms and conditions are reasonably explained et cetera switches from us to the OFT and that clearly is a boundary which is not all that clear.
Q6 Chairman: I understand. So, we will wait for the OFT and we will see what they say when they contact us. I want to spend 20 minutes on the HBOS and Lloyds issue. When was it determined that RBS and HBOS would need ELA support?
Extract ends.
In this post I will log that discussion, and let it stand alone. It will be an item of evidence to which will return more than once.
In my next series of posts I will explain why I believe it has the importance I attach to it.
******************
Date: 25th November 2009
Source of extract: http://www.publications.parliament.uk/pa/cm200910/cmselect/cmtreasy/35/9112502.htm
Extract Starts:
Examination of Witnesses (Question Numbers 1-19)
LORD TURNER OF ECCHINSWELL AND MR HECTOR SANTS
25 NOVEMBER 2009
Q1 Chairman: Good afternoon and welcome to this evidence session on the FSA Annual Report. Would you introduce yourselves formally for the record, please.
Lord Turner of Ecchinswell: Adair Turner, Chairman of the FSA.
Mr Sants: Hector Sants, Chief Executive of the FSA.
Q2 Chairman: For the first 20 minutes, I want to focus on comments about HBOS and bank charges and then we will move on to the other aspects, if you do not mind. On the issue of bank charges, as we know, the Supreme Court this morning seemed to have found in favour of the banks and I wonder what you think will happen next. We were discussing with the OFT about whether you should continue to use the courts as a way to challenge bank charges or whether other approaches may be more productive.
Lord Turner of Ecchinswell: Obviously, the Supreme Court has found in favour of the banks' arguments this morning that the overdraft charges are not assessable for fairness under the Unfair Terms in Consumer Contracts Regulations 1999 and that effectively means that people do not have a basis of complaint on the grounds that these charges are unfairly high. One immediate consequence of that from the FSA point of view is that the FSA had put in place a waiver for firms so that they did not have to deal with complaints about unauthorised overdraft charges in the time specified under our dispute resolution rules. We had been doing that because we felt that there was no purpose in a flow of complaints before there was legal certainty one way or another as to what the situation was, but that waiver has effectively ceased today; it was clearly linked to this decision and the moment that there was legal clarity that falls away. Looking forward, I think that it is obviously important that we have a regime where people are clearly informed and clearly understand the nature of these charges. The attitude of the Supreme Court is that it is reasonable for the banks to see the thing as a total package. The OFT will be clearly thinking about its next steps and we will have to wait to see what they intend to do. It is the case, of course, at the moment that the law in relation to the responsibility for things which are in an overdraft position gives responsibility to that to the OFT because that forms a consumer credit product of which we are not the direct regulator. We are in the slightly odd position of being the regulator of deposit taking but not the regulator of credit extension.
Q3 Chairman: Should we just write off past bank charges and focus on the future then?
Lord Turner of Ecchinswell: I think it is not the case that there can be no basis for complaints from the past and individuals may have to look at this because, for instance, if they think they were misinformed in the past, then that may be the basis of a complaint, but I think that it is clearly the case that the argument about whether these charges in the past can be deemed to be unfair, which is probably the basis of most of the complaints that have been brought forward, has been definitively resolved by the Supreme Court and I think that probably the priority for the authorities and the priority for society is to get a basis going forward which is seen as a good product, clearly explained and well understood by consumers.
Q4 Chairman: The Government have said that they will work with the OFT and yourselves so that a new framework for fairer bank charges can be implemented going forward. I would like to know what timescale you think there could be for that and will you be looking at the way in which bank charges are structured as part of your treating customers fairly procedures?
Lord Turner of Ecchinswell: As I say, the actual structure of bank charges, particularly as they relate to a credit extended, any category of unsecured credit actually falls to the OFT rather than us. Since we took on a statutory responsibility for deposit taking conduct of business—we have been responsible for that since 1 November—the credit extension side sits with the OFT. Clearly, we do however have a responsibility for making sure that complaints are fairly dealt with. I think this is an area where we will have to see how the OFT wants to proceed.
Q5 Chairman: Do you think that you could assume responsibility for credit? Do you feel that it is in your interests?
Lord Turner of Ecchinswell: I think we have always said that there is an issue about the appropriate divide in responsibility in relation to credit products. We have always been wary of suggesting that the FSA should be responsible for all consumer credit because, of course, that extends to things which are not extended by financial institutions to the whole of, for instance, in-store credit. On the other hand, clearly there is an issue where you have one product which the Supreme Court has decided from a pricing point of view ought to be seen as a total package where, if somebody goes from being £5 in credit to £5 in debit, at the moment, the way in which the law works, the responsibility for making sure that the terms and conditions are reasonably explained et cetera switches from us to the OFT and that clearly is a boundary which is not all that clear.
Q6 Chairman: I understand. So, we will wait for the OFT and we will see what they say when they contact us. I want to spend 20 minutes on the HBOS and Lloyds issue. When was it determined that RBS and HBOS would need ELA support?
Extract ends.
Thursday 23 September 2010
Bank Charges - an example of regulatory failing? Day 1
In March of this year, I sent an e-mail to Lord Turner, Chairman of the Financial Services Authority (FSA). I sent copies to the Treasury Select Committee (TSC) at the House of Commons, to the Office of Fair Trading (OFT) and to the Justices at the Supreme Court.
An extract from that e-mail reads as follows:
" Attached to this e-mail you will find a pdf file, which contains an extract from the corrected report of your appearance before the Treasury Select Committee on the 25th of November last year. My notes will address, in detail, the comments and answers which you gave at that meeting, and will I believe call into question the current conventional view that this matter of "Bank Charges" is resolved.
Indeed, I believe my notes will reveal significant regulatory failings on the part of the Financial Services Authority. Thus my reason for addressing the principal e-mail, and subsequent notes, to you as Chairman.
The Office of Fair Trading will also have an interest, and given the attachment, so too, I believe, will members of the Treasury Select Committee, which I trust will explain my reasons for sending copies to them.
It may not be immediately apparent why I have also chosen to include a copy for the Supreme Court. I do indeed hope they may have a general interest in my notes, whilst I accept without question that they have reached their judgement."
That was March, and I decided for a host of reasons, not least the changes due to the General Election in the UK, that I should delay taking the matter forward. I was also asked by those who knew of my research to publish the evidence that formed my opinions in public, not restricted to those to whom the e-mail was sent.
This Blog is designed for that purpose - it is open for anyone who may have an interest to read and form their own conclusions.
So am I correct in my opinion that the manner in which the FSA, and the OFT, and the manner in which the Treasury Select Committe accepted the situation over the subject of Bank Charges is an example of regulatory failing?
My opinion is based on the evidence I intend to present, and I believe that this subject of Bank Charges, and whether they were fair or unfair, may point to other similar examples where regulatory failings have cost the public dear.
Tomorrow, I will lead off with an extract from the evidence Lord Turner gave to the Treasury Select Committee in November 2009, and which I believe will prove to be of singular importance.
I am delaying posting that extract for one day - out of courtesy to Lord Turner, to whom I have today issued an e-mail informing him of this Blog being opened. The original recipients of my March e-mail have been similarly informed.
An extract from that e-mail reads as follows:
" Attached to this e-mail you will find a pdf file, which contains an extract from the corrected report of your appearance before the Treasury Select Committee on the 25th of November last year. My notes will address, in detail, the comments and answers which you gave at that meeting, and will I believe call into question the current conventional view that this matter of "Bank Charges" is resolved.
Indeed, I believe my notes will reveal significant regulatory failings on the part of the Financial Services Authority. Thus my reason for addressing the principal e-mail, and subsequent notes, to you as Chairman.
The Office of Fair Trading will also have an interest, and given the attachment, so too, I believe, will members of the Treasury Select Committee, which I trust will explain my reasons for sending copies to them.
It may not be immediately apparent why I have also chosen to include a copy for the Supreme Court. I do indeed hope they may have a general interest in my notes, whilst I accept without question that they have reached their judgement."
***************
That was March, and I decided for a host of reasons, not least the changes due to the General Election in the UK, that I should delay taking the matter forward. I was also asked by those who knew of my research to publish the evidence that formed my opinions in public, not restricted to those to whom the e-mail was sent.
This Blog is designed for that purpose - it is open for anyone who may have an interest to read and form their own conclusions.
So am I correct in my opinion that the manner in which the FSA, and the OFT, and the manner in which the Treasury Select Committe accepted the situation over the subject of Bank Charges is an example of regulatory failing?
My opinion is based on the evidence I intend to present, and I believe that this subject of Bank Charges, and whether they were fair or unfair, may point to other similar examples where regulatory failings have cost the public dear.
Tomorrow, I will lead off with an extract from the evidence Lord Turner gave to the Treasury Select Committee in November 2009, and which I believe will prove to be of singular importance.
I am delaying posting that extract for one day - out of courtesy to Lord Turner, to whom I have today issued an e-mail informing him of this Blog being opened. The original recipients of my March e-mail have been similarly informed.
Wednesday 22 September 2010
Prologue ...
Many of the issues I intend to address in this Blog would make great material for those who love conspiracy theories.
In fact in the first item, dealing with Banks, Governments, Regulators and Courts of Law, I cannot totally rule out that there was a conspiracy - a big one. As I present the evidence, see what you think.
I like mystery thrillers, whether in books, on TV or in films. One of my favourites is "A Few Good Men". It involves the death of a US Marine, and much of the drama in the film takes place in a Military Court, as the truth is sought - and eventually found.
Part of the dialogue in the Court:
Judge Randolph: Consider yourself in Contempt!
Kaffee: Colonel Jessep, did you order the Code Red?
Judge Randolph: You don't have to answer that question!
Col. Jessep: I'll answer the question!
[to Kaffee]
Col. Jessep: You want answers?
Kaffee: I think I'm entitled.
Col. Jessep: You want answers?
Kaffee: I want the truth!
Col. Jessep: You can't handle the truth!
[pauses]
Col. Jessep: Son, we live in a world that has walls, and those walls have to be guarded by men with guns. Whose gonna do it? You? You, Lt. Weinburg? I have a greater responsibility than you could possibly fathom. You weep for Santiago, and you curse the marines. You have that luxury. You have the luxury of not knowing what I know. That Santiago's death, while tragic, probably saved lives. And my existence, while grotesque and incomprehensible to you, saves lives. You don't want the truth because deep down in places you don't talk about at parties, you want me on that wall, you need me on that wall. We use words like honor, code, loyalty. We use these words as the backbone of a life spent defending something. You use them as a punchline. I have neither the time nor the inclination to explain myself to a man who rises and sleeps under the blanket of the very freedom that I provide, and then questions the manner in which I provide it. I would rather you just said thank you, and went on your way, Otherwise, I suggest you pick up a weapon, and stand a post. Either way, I don't give a damn what you think you are entitled to.
Kaffee: Did you order the Code Red?
Col. Jessep: I did the job I...
Kaffee: Did you order the Code Red?
Col. Jessep: You're Goddamned right I did!
Sometimes, it takes a lot of effort to seek and then find the truth - and that is what, in part, this Blog will attempt to do - by providing evidence that might lead us there, in much the same manner as it appears in many similar Court Room dramas.
But, this will be factual evidence, not fictional, and as the above dialogue clearly demonstrates, there are times when there are those who set out to hide the truth and there are also those who can't handle the truth.
Day 1 of Trial One will be posted shortly. I hope you will return to hear the evidence and form your verdict.
In fact in the first item, dealing with Banks, Governments, Regulators and Courts of Law, I cannot totally rule out that there was a conspiracy - a big one. As I present the evidence, see what you think.
I like mystery thrillers, whether in books, on TV or in films. One of my favourites is "A Few Good Men". It involves the death of a US Marine, and much of the drama in the film takes place in a Military Court, as the truth is sought - and eventually found.
Part of the dialogue in the Court:
Judge Randolph: Consider yourself in Contempt!
Kaffee: Colonel Jessep, did you order the Code Red?
Judge Randolph: You don't have to answer that question!
Col. Jessep: I'll answer the question!
[to Kaffee]
Col. Jessep: You want answers?
Kaffee: I think I'm entitled.
Col. Jessep: You want answers?
Kaffee: I want the truth!
Col. Jessep: You can't handle the truth!
[pauses]
Col. Jessep: Son, we live in a world that has walls, and those walls have to be guarded by men with guns. Whose gonna do it? You? You, Lt. Weinburg? I have a greater responsibility than you could possibly fathom. You weep for Santiago, and you curse the marines. You have that luxury. You have the luxury of not knowing what I know. That Santiago's death, while tragic, probably saved lives. And my existence, while grotesque and incomprehensible to you, saves lives. You don't want the truth because deep down in places you don't talk about at parties, you want me on that wall, you need me on that wall. We use words like honor, code, loyalty. We use these words as the backbone of a life spent defending something. You use them as a punchline. I have neither the time nor the inclination to explain myself to a man who rises and sleeps under the blanket of the very freedom that I provide, and then questions the manner in which I provide it. I would rather you just said thank you, and went on your way, Otherwise, I suggest you pick up a weapon, and stand a post. Either way, I don't give a damn what you think you are entitled to.
Kaffee: Did you order the Code Red?
Col. Jessep: I did the job I...
Kaffee: Did you order the Code Red?
Col. Jessep: You're Goddamned right I did!
Sometimes, it takes a lot of effort to seek and then find the truth - and that is what, in part, this Blog will attempt to do - by providing evidence that might lead us there, in much the same manner as it appears in many similar Court Room dramas.
But, this will be factual evidence, not fictional, and as the above dialogue clearly demonstrates, there are times when there are those who set out to hide the truth and there are also those who can't handle the truth.
Day 1 of Trial One will be posted shortly. I hope you will return to hear the evidence and form your verdict.
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