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.
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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.
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