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.
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