Bank charges are unfair! - Proof beyond any reasonable doubt? Part 2

On the 27th July 2007, the Financial Services Authority issued a Press Notice, headed - " FSA grants waiver to firms on complaints handling" (1)

In it, Clive Briault, Managing Director, Retail Markets, said:

"We have granted the waiver to help facilitate this test case. We believe it is not in the interests of all consumers for complaints to continue to be dealt with in the current inconsistent way. Once there is certainty on these charges, complaints can be dealt with fairly and consistently."

If the waiver was granted to facilitate the test case, and to obtain certainty on charges, some questions arise:

- was it 100% clear that the test case would indeed obtain the required certainty on charges? No room for any doubts?

- was it 100% clear that the test case would leave no doubts whatsoever, that there would be absolute certainty? No, not one, doubt?

- was it in any way guaranteed that the test case would completely remove the inconsistent way in which complaints were dealt with? No room for any doubts?

Let's remind ourselves what the Supreme Court Press Notice (2) said, and break it down into its individual parts:

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.


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).

When you compare the reasons given for the issue of that waiver by the FSA, the need to end inconsistency, the need to obtain certainty, when you compare those reasons with what the Supreme Court was actually asked to address - a narrow issue

You are the jury ... does the final Supreme Court judgement in that test case

- convince you - beyond any reasonable doubt - that all inconsistencies have indeed been removed, and that we now have the promised certainty?

- do you now have a complete legal answer as to whether bank charges are fair or unfair - no room for any doubts, not one?

You are the jury.  Form your verdict.

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Lord Turner, the Chairman of the FSA appears to have formed his verdict, he appears to have reached his conclusions?  Let's see if they agree with yours.

The Supreme Court issued that Press Notice, and their final judgement on the 25th of November 2009.

On that very same day, the Treasury Select Committee held a meeting.  Before it as witnesses were Lord Turner, Chairman of the FSA, and Hector Sants, CEO of the FSA.

During the questioning (3), Lord Turner made this comment to the Committee:

" ... 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."

Pardon?  Lord Turner appears to believe there was legal clarity.  Well, there was indeed legal clarity - that is the truth - but was it the legal clarity, the certainty over charges for which the waiver was issued by the FSA.  Did that legal clarity - on that narrow issue - remove all inconsistencies, did it remove all uncertainties, was there now no need whatsoever for any waiver - because we all now had legal clarity?

Did everyone now know the answer to whether bank charges were fair or unfair. Well, might I suggest it was everyone except the Supreme Court perhaps ... and yes, me and you.

Perhaps, this further comment from Lord Turner to the TSC on that day will explain what Lord Turner was thinking:


"... 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 ..."

You are the jury

Do you agree with Lord Turner?

Do you agree - beyond any reasonable doubt - that the argument about whether these charges in the past can be deemed unfair [ ... ] has been definitely resolved by the Supreme Court?

Do you agree when the Supreme Court's words were:

The Supreme Court had to decide not whether the banks’ charges for unauthorised overdrafts were fair 

the court did not have the task of deciding whether or not the system of charging current account customers was fair, 


If you do agree with Lord Turner, despite that evidence of what the Supreme Court actually said, perhaps there is little point in reading further.

Personally, I don't agree, personally I cannot see how anyone could agree with Lord Turner's comments to the TSC - which is why this blog exists, and why since its inception I have ensured that Lord Turner, the FSA, the FOS, the OFT, the TSC and others are all aware of its existence.

If you disagree with Lord Turner's thinking, and feel that there is still a completely unanswered question over the fairness or otherwise over bank charges, then please keep reading.

I will offer both evidence and proof of why - bank charges were and are unfair - contrary to Lord Turner's view.

A bit later on it will include - as only one item of that proof - the reason why I highlighted the word "all" earlier. You didn't notice that?  It's way back at the beginning in Clive Briault's comments, when he referred to "all" consumers. That simple three letter word "all"  - as in "all" consumers has a major part to play.

But for now, let's briefly re-visit the Co-ordination Committee - why are bank charges not on their agenda?

Well, perhaps the views expressed by Lord Turner explain at least one reason why the Co-ordination Committee do not have the subject of bank charges on their agenda.  They may have concluded - perhaps as Lord Turner may have concluded - that the issue is dead. Do you know of any other reason?

You are the jury

Is the issue dead as far as you are concerned? Or would you like proof that - bank charges were and are unfair?

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PS: The links to the numeric notations in this and further posts in this blog will appear in an addendum at the conclusion of the blog.

Bank Charges are unfair! - Proof beyond any reasonable doubt? - Part 1

If you are amongst those who have been following this blog - we are nearing a conclusion.  If you are new to reading these posts - welcome!

To reach that conclusion we need to decide my role, and yours - yes indeed, you have a part to play in all of this - the single most important part of all - let me explain why.

Evidence is information that helps form a conclusion; proof is factual information that verifies a conclusion.

The many posts, so far, in this blog have contained evidence, I now intend to use that evidence (with some yet to be added) as proof sufficient to verify this conclusion:

Bank charges are unfair! 


In most Western legal systems there are two forms of proof - one related to a criminal trial and one related to a civil action in a court.

In a civil action, the proof required, on the evidence presented, is that a conclusion can be reached by a jury - on the balance of probabilities.

In a criminal trial, the proof required, on the evidence presented, is that a conclusion can be reached by a jury - if it is beyond any reasonable doubt.

I intend to take the harder of those two - proof beyond any reasonable doubt - that bank charges are unfair.

That is my task.  And, it ain't easy. Many would say it is well nigh impossible.

What is yours?

Well, we need a jury - you are the jury!


Ultimately - it will be your verdict alone which counts.

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Let's have a practice session.

In my last post, I gave you evidence related to a meeting of the Co-ordination Committee, consisting of the FSA, the OFT and the FOS.

I entered into evidence the "Minutes" of the first meeting of that committee - February 2011.

I asked you to see if they discussed the subject of "bank charges".

That was "evidence".  

Does it prove to you - beyond any reasonable doubt: 

- that the three bodies principally responsible in the matter of "bank charges" 

- that the three bodies most closely involved in the long running saga over "bank charges" 

- did not have that subject on their agenda?

You have the evidence - is it proof, beyond any reasonable doubt?

You are the jury! Reach your verdict.

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In each of the posts that follow - I will take forward some of the evidence presented earlier in this blog, I will also add further evidence, I will then use each item of evidence as proof that bank charges are unfair.

As I do so  - I would ask you to remember THE single most important requirement a court imposes on a witness - that they tell the truth, the whole truth, and nothing but the truth.

Remember this earlier item of evidence - from the Supreme Court Press Summary?

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.

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).

Is the reason why to date nobody yet has an answer as to whether bank charges are fair or unfair lies in whether - you the jury -  have been told the truth, the whole truth, and nothing but the truth?

Please meet the Co-Ordinating Committee - Part 2

Ok - let's take a look at those first "Minutes" of the recently established Co-ordinating Committee - a committee which includes senior individuals drawn from the FSA, the OFT, and the FOS.

If you have just finished reading the last post on this blog, you will know I am looking for a reference, any reference at all to the issue of bank charges.  That's all, just a reference, even a passing comment, anything!

Well, let's see, here are the -"The Minutes"

You will first find the list of attendees at that first meeting of the committee held on the 25th of February 2011. All hold senior positions in each of those three organisations, as was intended when the committee was established.

These are the headings you will find - Credit brokerage: Adequate explanations and assessment of creditworthiness and affordability : Credit and store cards  : Debt freeze/debt waiver products : Peer to peer lending : Exchange Traded Funds (ETFs) and other exchange traded products :  Self-invested personal pensions (SIPPs) : Housing and mortgage market related risks : Payday loans : Cases to the ombudsman service  :  Retail Conduct Risk Outlook (RCRO) :  Feedback statement to DP 10/1 : Reporting and monitoring of risks.

Now did you spot the heading on "Bank Charges"?  Nope, neither did I.  Did you use the link, and read every word, look at every paragraph - and not just take my word for it?

Maybe you looked under AOB?

A.O.B


There was no other business to discuss.

Nope, not there either.

I don't know how much you may know about the regulatory world, the world inhabited by the likes of the FSA, the OFT and the FOS, but suffice to say it is a world in transition.  It has happened before, Gordon Brown once took the regulatory world apart (as it was) and reconstructed it - that was where the FSA first was born, under Gordon Brown.

The current Coalition Government are in the throes of taking it apart, and reconstructing it all over again.  There will be nobody who has any interest in the world of regulation who is unaware of the changes that are underway - and that is true (at least one sincerely hopes it is true) of all those who attended that meeting.

It is they and their colleagues who are responsible now - today, responsible through a transition period over the next few years, and responsible thereafter for ensuring that what Parliament and the current Coalition Government say should happen - happens!

An important task - a very important task indeed.

So it raises this very interesting question - do they know what plans are in place under the current Coalition Government over this issue of bank charges?  Nope, I am going to deliberately repeat what should be a ridiculous question - do they know?

Let's look at something from the Coalition agreement - the one formed by the current Coalition Government.

Here is where to source the complete document.


I just want to use one extract from it, this one:

We will introduce stronger consumer protections including measures to end unfair bank and financial transaction charges.

Yes, you might well shout "Eureka!" - the Government recognise something that links the word "unfair" with the two words "bank charges".

Yes it is good to find someone, in fact anyone, beyond those affected by the issue who does recognise there is in fact an issue.

But let's leave the politicians out of it for now - that is for later, let's just stick for now with those "Minutes", and the complete absence of any reference to bank charges. I wasn't really looking for words such as "fair" or "unfair", that might have been a hope too far.

I was just looking for the merest reference of any kind whatsoever to "bank charges". Just two words.  More would have been good, but that was all I really wanted to read - that the issue was on the committee's agenda.

Stop for a moment - try this:

Imagine you were one of those attending that meeting, imagine you hold a senior position in either the FSA, the OFT, or the FOS.

Now would you think it likely that you would be aware of the three Court cases involving that issue over bank charges - or would that have slipped your notice, passed you by entirely, you just did not know about the specifics of the ruling the Supreme Court pronounced?

If that were the case should you be at the meeting, indeed should you be in the job at all?

Would you think it likely that you would be aware or unaware of the Coalition Government's proposals to address "unfair" "bank" "transactions" - or would you be blissfully unaware that they were even thinking about it.

Again, if was not something that you had any knowledge of whatsoever, should you be at the meeting, indeed should you be in the job at all?

If this was the very first meeting of a newly established co-ordinating committee, inclusive of senior figures from the FSA, the OFT, and the FOS do you think, maybe, just maybe, "bank charges" might just get a mention somewhere - even just a passing comment under AOB?

But there is nothing, nada, zilch.

Beyond perhaps wondering what on earth is going on - maybe the more important question is  - why is there no mention of the issue over bank charges.  

Why, given the responsibilities of those involved,


Why given the publicity that has raged around the issue of bank charges for years,


Why given a clear statement that the very issue of "unfair" bank charges is on the Coalition Government's agenda

Why do you think the issue over bank charges is nowhere to be seen on the Co-ordinating committee's agenda?

What possible explanation could there be?

The next post will address those questions.

Please meet the Co-ordinating Committee - Part 1

It is time I think to introduce you to a Committee which directly and specifically links the FSA, the OFT and the FOS - a co-ordinating committee.  It was formed after discussion and consultation in February 2011. Very late in the day some might suggest.

Despite its relatively recent appearance, it may prove to be a pivotal body in reaching an answer as to whether bank charges are fair or unfair - not least because it is a committee on which all three of those bodies get together, but more importantly because of why they get together.

Let me explain.

Via this link you will find the Terms of Reference for the co-ordinating committee -

Let's look at some extracts (some of which I have highlighted and will give an explanation for so doing in my next post):

Coordination Committee
terms of reference  


Functions


1. The main functions of the Coordination Committee (CC) are to:

(a) contribute to the identification of emerging risks that have the potential to
cause widespread detriment amongst financial services consumers;  


(b) coordinate consideration of whether:

o emerging risks with the potential to cause widespread detriment should
be dealt with through firms’ complaints handling and the Financial
Ombudsman Service (ombudsman service) or through regulatory
intervention by the Office of Fair Trading (OFT) or the Financial
Services Authority (FSA); 


o risks that are causing widespread consumer detriment should continue 
to be dealt with by firms’ complaints handling and the ombudsman
service or through regulatory intervention by the OFT and FSA; 


(c) promote alignment between the OFT’s or the FSA’s response to emerging 
risks and widespread issues and the ombudsman service, with regard to the
potential differences between the regulatory approach and how the
ombudsman service is required to deal with individual complaints;  


(d) promote alignment in key communications about the positions of the 
ombudsman service and the FSA or OFT in the handling of emerging risks
and widespread issues; and 


(e) contribute to the effective exchange of information between the FSA, OFT, 
and ombudsman service. 


4. Membership of the CC will comprise the FSA’s Conduct Risk Division, the 
Executive Director of the OFT’s Markets and Projects Group, and the ombudsman
service’s Decisions Director. Each member will be accompanied by no more than
two other persons. A Director at the FSA will be the chairman. 


Procedures 


6. The CC will meet at regular intervals, at least four times a year. The CC will meet on
an urgent basis outside of scheduled meetings if, in the opinion of the member
seeking the meeting, it is necessary in order for the committee to fulfil its functions. 


7. The CC will invite any person to take part in considerations that are consistent 
with the discharge of the committee’s functions. 


8. The CC will make public the issues it has considered. It will also make public the 
actions taken by the FSA, OFT and ombudsman service where they relate to the
committee’s considerations.  


9. Information sharing within the CC will be subject to the restrictions set out in the  
memorandums of understanding between the FSA, the OFT and the ombudsman
service. 

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Those of you following this blog will already know that earlier I used this test:

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.

Item 9, the last item in those extracts above makes clear mention of such Memoranda of Understanding.  There have been so many I have described them as a blizzard (earlier posts on this blog will justify that description)

Might it be that this new committee is a way of seeing through that blizzard, and reaching an answer over bank charges, and whether they are fair or unfair?

One would hope so, particularly when the opening paragraphs to the terms of reference for the committee read as:

1. The main functions of the Coordination Committee (CC) are to:

(a) contribute to the identification of emerging risks that have the potential to
cause widespread detriment amongst financial services consumers;  

You don't need to look very far, or google for very long using "bank charges" as the two words involved to find that literally millions of individuals have been affected by the imposition of bank charges.

So, is help available at long last?  Will this committee recognise the effect of bank charges on those millions of individuals, and offer an answer to what is essentially a very simple question:

Are bank charges fair or unfair? 

Please always bear in mind the earlier evidence in this blog of what the Supreme Court said in their Press Summary:

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.

So have we now seen a body formed, albeit late in the day, that will look at that simple question - and then answer it?

We need to look at the first set of "Minutes" from the co-ordinating committee to see what they have, and have not, indentified as emerging risks that have the potential to cause widespread detriment amongst financial services consumers.

Sadly might it be that the co-ordinating committee, comprising the FSA, the OFT and the FOS are but the latest example where their efforts, or lack of them, have yet again established the basis for real consumer detriment and serious regulatory failings. It would be quite something if there were "evidence" that was the case, would it not?

Did they identify "bank charges" in that category?  Were they aware of the millions affected by bank charges, who wanted an answer to that simple question?

Crucially, why - given that the Supreme Court cannot have made it any clearer that their decision was in no way related to answering the question of fairness or otherwise -surely the issue of bank charges and its effects on millions of people, surely that simple question would appear on the committee's radar? Surely?

It really would be quite something if there were "evidence" that it was not considered at all. would it not?

Ironically, perhaps, even more important would be to understand why - if indeed it was not addressed.

The next - set of posts - will let you have the "evidence" you need to answer those questions. Starting with those first set of "Minutes".

Supplementary Note - Forum Related

A number of consumer forums in the UK have allowed links to this blog to be given to their members, others are allowing extracts to be posted.

Those reading these posts, but not arriving here from those forums, will find my reference (in the post immediately above) to a recent Court ruling in the UK, and its importance, insufficiently explained.

This is a note I posted on those forums (Yes - I know it's fora - but fora as opposed to forums still just sounds wrong to me).

It is supplementary to this blog - but I hope will explain the reference and keep things in context

********************

I have three more posts similar to those above to add to the blog.

They are repetitive in nature. I will not post extracts (as above) on here for that reason - but I will post the links to the last three items once they are added to the blog so that those interested can see the details for themselves.

For those reading these items. I should explain that since the blog was started last year, and before the Supreme Court decision, its existence and details have been made known to the FSA, the OFT, the Treasury Select Committee and others - including MSE Guy and Mike Dailly.

Contact with those bodies has continued as the blog has developed, and this week I issued a further series of e-mails to those bodies and this week added the FOS to the list.

Why the FOS, and only now? 

In each of the above examples, and the ones I have yet to add to the blog, I am building a "body of evidence", which demonstrate the powers and effectiveness of the FSA, based not solely on the "Rules" which they enforce, but also on the "Principles" that they require to be followed by each party that they authorise.

Why is that important? Those that have a detailed knowledge of the recent Court ruling on the BBA case against the FSA over PPI - will know that s 150 of the Financial Services and Markets Act was central to the eventual ruling.

More importantly - in those legal arguments a hugely important distinction was drawn by the judge in that eventual ruling over the application of s 150 as it applied to the FSA and to the FOS. There is a difference - a crucial one - that separates the FSA and the FOS over issues of fairness and reasonableness - and that is where the blog is heading.

That distinction has a vital role to play in this whole matter of the fairness or otherwise of bank charges - and the "body of evidence" I am building in the blog will, I hope, play its part in having that distinction and its importance recognised.

Once I have completed the next set of posts - still painstakingly listing that evidence - I will then move onto an analysis of that Court ruling on PPI - and show its application to the question of bank charges.

I will post extracts here when they are posted on the blog.

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The FSA - In Action - 5/5

This is the last of 5 posts, which relate to the FSA taking action against firms which they regulate.

I will offer little by way of comment, but will instead provide links in each case 1) to the FSA Press Notice involved and 2) to the "Final Notice" given by the FSA  to the firms or individual involved.

In each of these 5 posts I will include highlighted extracts.

1: To illustrate why I hold the view that the OFT approach of setting a "threshold level" was too narrow.

2: To further illustrate that aspect by highlighting both the breadth and depth that the approach used by the FSA stands in comparison to the OFT - you will be able to judge the truth of that or otherwise for yourself

However - I do not want anybody to be misled in any way when I use extracts so I do urge you to use the links provided and read each item in full.

As you do so, you will find reference to some of the items I have commented on before - such as the high level "Principles" that the FSA apply to all those that they regulate, reference also to the powers granted under statute to the FSA, and lastly reference to the - activity related - "Conduct of Business" rules.

In each of these 5 posts we are looking at those "Principles" as they apply to all firms regulated by the FSA -and those "Conduct of Business Rules" as they apply to mortgages (MCOB)

However as you see how they are enforced by the FSA, just bear in mind (perhaps heavily) that those high level "Principles" do apply in the very same way to Banks, and everyone else authorised by the FSA - they are universal in their application.

And also bear in mind (again perhaps heavily) that banks do not escape similar, although not identical "Conduct of Business Rules" this time called "BCOBS".

You can find full details in the links for the full FSA Handbook I listed in an earlier post

*********************

Please read in full the Press Notice in this fifth and last example.

Here are some edited extracts:

FSA fines DB Mortgages for irresponsible lending and poor treatment of customers in arrears

Firms need to understand that we will not tolerate lax lending practices and unfair treatment of customers in arrears.

The Financial Services Authority (FSA) has today announced that it has fined DB Mortgages, part of the Deutsche Bank Group, £840,000 for irresponsible lending practices and unfair treatment of customers in arrears, and secured redress of approximately £1.5 million for DB Mortgages’ customers.

On treatment of customers in arrears, DB Mortgages did not consider customers’ individual circumstances or tell them about the range of options that were available to them, and applied charges that were unfair because they were charged repeatedly or did not accurately reflect the cost of administering an account in arrears.

''Firms which fail in their obligations to customers should expect not only a substantial fine but also that they will have to pay back customers who have been disadvantaged by their failings''.

**************************

Next let's look at the "Final Notice" for this example - please read in full.

However, here are some edited extracts:

TAKE NOTICE: The Financial Services Authority of 25 The North Colonnade, Canary Wharf, London E14 5HS (“the FSA”) gives you final notice about a requirement to pay a financial penalty.

1. THE PENALTY

1.1. The FSA gave DB UK Bank Limited (trading as DB Mortgages) (“DBM” or “the Firm”) a Decision Notice on 15 December 2010 which notified the Firm that, pursuant to section 206 of the Financial Services and Markets Act 2000 (“the Act”), the FSA had decided to impose a financial penalty of £840,000 in respect of breaches of Principle 3 (Management and control) and Principle 6 (Customers’ interests) of the FSA’s Principles for Businesses (“the Principles”) and Rules 11.3.1 R, 12.4.1 R, 13.3.1 R and 13.4.1 R of the Mortgages and Home Finance: Conduct of Business Sourcebook (“MCOB”) in the period between 13 January 2006 and 1 December 2008 (“the Relevant Period”).

1.2. DBM will carry out a customer redress programme to redress the failings set out in this notice (as set out in more detail at paragraphs 2.9 to 2.11 below). The total estimated cost of redress for the period is approximately £1.5 million including interest in relation to refunds of fees and charges and the payment for customers to receive independent financial advice. In addition, there will be a customer contact exercise which may lead to further redress but the amount can not be quantified at this time.

2. REASONS FOR THE ACTION

2.1. The breaches of the Principles and MCOB Rules, which are described in more detail in section 4 below, relate to a number of serious failings by DBM in its lending policy and practices, and in its treatment of customers who were in arrears.

Principle 6

2.5. The Firm breached Principle 6 and MCOB 13.3.1R during the Relevant Period in that it failed to ensure that the relevant mortgage servicing staff had an adequate understanding of, and implemented, the requirement to treat customers fairly in their mortgage arrears and repossession activities.

(2) failed to ensure that customer complaints were appropriately recognised and adequately dealt with by the relevant mortgage servicing staff;

(3) applied certain charges to customers’ accounts that were unfair in that the charges were repeatedly charged or did not accurately reflect the cost of administering an account in arrears. As a result of some of these charges, the Firm was also in breach MCOB 12.4.1 R;

(4) failed to develop an appropriate cost-based approach to the calculation of its arrears charges and therefore could not be sure that they were a reasonable estimate of the cost of administering an account in arrears. As a result of this, the Firm was also in breach of MCOB 12.4.1 R

Seriousness of conduct

2.7. The FSA considers DBM’s failings to be serious given the importance of ensuring that mortgage lending activities are conducted responsibly and take into account customers’ interests. The FSA also considers DBM’s failings to be serious because these failings created a significant risk that a large number of customers who were in mortgage arrears or who had incurred a mortgage shortfall debt (including customers with impaired or non-standard credit profiles) were not treated fairly. In some instances, such customers were also put at a risk of financial loss.

2.11. For failings in relation to DBM’s treatment of customers in arrears:

(1) DBM will write to all borrowers with regulated mortgage contracts which went into arrears and pay redress as appropriate;

(4) DBM will refund to borrowers any returned direct debit fee or returned cheque fee if that fee had already been charged in the same month;

3. RELEVANT STATUTORY PROVISIONS

3.1. The FSA’s statutory objectives are set out in section 2(2) of the Act. The relevant objectives for the purpose of this case are maintaining market confidence and the protection of consumers.

3.2. Section 206 of the Act provides:

“(1) If the Authority considers that an authorised person has contravened a requirement imposed on him by or under this Act, it may impose on him a penalty, in respect of the contravention, of such amount as it considers appropriate.”

3.3. The procedures to be followed in relation to the imposition of a financial penalty are set out in sections 207 and 208 of the Act.

3.4. DBM is an authorised person for the purposes of section 206 of the Act. The requirements imposed on authorised persons include those set out in the FSA’s Principles and Rules made under section 138 of the Act. Section 138 of the Act provides that the FSA may make such rules applying to authorised persons as appear to be necessary or expedient for the purposes of protecting the interests of consumers.

3.6. Principle 6 states:

“A firm must pay due regard to the interests of its customers and treat them fairly.”

3.7. MCOB 11.3.1 R provides that:

(1) “A firm must be able to show that before deciding to enter into, or making a further advance on, a regulated mortgage contract, or home purchase plan, account was taken of the customer's ability to repay.”

3.8. MCOB 12.4.1 R provides that:

(1) “A must ensure that any that it firmregulated mortgage contractenters into does not impose, and cannot be used to impose, a charge for on a except where that charge is a reasonable estimate of the cost of the additional administration required as a result of the customer being in .” arrears"

3.9. MCOB 13.3.1 R provides that:

(1) “A firm must deal fairly with any customer who:

(a) is in arrears on a regulated mortgage contract or home purchase plan

Unfair charges

4.28. During the Relevant Period, DBM failed to take sufficient steps to ensure that arrears fees and charges were based on a reasonable estimate of the cost of the additional administration caused by the customer being in arrears, for example no sufficient activity-based costing exercise was undertaken during the Relevant Period.

4.29. In addition, DBM levied a number of unfair charges on customers in arrears, including:

(1) a fee for a returned direct debit which was repeatedly charged by DBM;

4.30. The above charges were unfair because they were repeatedly charged or they did not accurately reflect the additional administrative costs incurred by DBM.

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So, we have five examples of the FSA taking regulatory action against firms - dating as far back as October 2009 to the near present day in February 2011.

What do they tell us about the manner in which the FSA enforce both their "Rules" and higher level "Principles"?

What part do they play over the question of the fairness or otherwise of bank charges?

The answers to those questions will be addressed in the posts that follow.

They lead to 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 will also begin to cover the crucial distinction arising from the recent Court ruling in the Judicial Review in the BBA challenge to the FSA and the FOS regarding PPI - the crucial distinction over how the application of these FSA "Rules" and "Principles" are to be applied, and have now been recognised in law following that Court judgement.


The "evidence" I will lead will allow you to judge for yourself:

1 - why that question addressed to Lord Turner and the FSA - when answered - plays a unique part over the question of the fairness or otherwise of bank charges.

2 - why that recent Court ruling in that it reveals a crucial distinction between the FSA and the FOS - plays an equally unique part over the question of the fairness or otherwise of bank charges.

3 - why the OFT have proven to be the wrong route to follow to find an answer to the question of the fairness or otherwise of bank charges

4 - why despite all of the costs involved to date, despite the many column inches in the media, despite the financial and emotional difficulties faced by many who have faced these charges - we have not yet gained an answer to whether bank charges are fair or not.

I hope the posts and "evidence" to follow will play their part in finally answering that question.


I also hope to see you here as those posts appear and that "evidence" is provided.

The FSA - In Action - 4/5

This is the fourth of 5 posts, which relate to the FSA taking action against firms which they regulate.

I will offer little by way of comment, but will instead provide links in each case 1) to the FSA Press Notice involved and 2) to the "Final Notice" given by the FSA  to the firms or individual involved.

In each of these 5 posts I will include highlighted extracts.

1: To illustrate why I hold the view that the OFT approach of setting a "threshold level" was too narrow.

2: To further illustrate that aspect by highlighting both the breadth and depth that the approach used by the FSA stands in comparison to the OFT - you will be able to judge the truth of that or otherwise for yourself

However - I do not want anybody to be misled in any way when I use extracts so I do urge you to use the links provided and read each item in full.

As you do so, you will find reference to some of the items I have commented on before - such as the high level "Principles" that the FSA apply to all those that they regulate, reference also to the powers granted under statute to the FSA, and lastly reference to the - activity related - "Conduct of Business" rules.

In each of these 5 posts we are looking at those "Principles" as they apply to all firms regulated by the FSA -and those "Conduct of Business Rules" as they apply to mortgages (MCOB)

However as you see how they are enforced by the FSA, just bear in mind (perhaps heavily) that those high level "Principles" do apply in the very same way to Banks, and everyone else authorised by the FSA - they are universal in their application.

And also bear in mind (again perhaps heavily) that banks do not escape similar, although not identical "Conduct of Business Rules" this time called "BCOBS".

You can find full details in the links for the full FSA Handbook I listed in an earlier post

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Please read in full the Press Notice in this fourth example.

Here however are some edited extracts:

FSA fines mortgage lender and its director for irresponsible lending and unfair treatment of customers in arrears



The Financial Services Authority (FSA) has fined small mortgage lender, Bridging Loans Ltd, £42,000 and its director Joseph Cummings £70,000 for serious failures relating to lending practices and for failing to treat customers fairly in arrears.


The FSA has also banned Joseph Cummings, and taken action to prevent three other directors at the firm from being able to operate in senior positions within the financial services industry. This is the first case of its kind by the FSA against a mortgage lender’s senior management concerning irresponsible lending and unfair practices in respect of dealing with customers in arrears.



Margaret Cole, the FSA’s director of enforcement and financial crime, said:


"Joseph Cummings showed total disregard for the interests of Bridging Loans Ltd’s customers, basing his decisions and subsequent treatment of a customer on whether or not he liked or trusted them, rather than on any proper assessment of their circumstances.


"This sort of behaviour towards customers cannot be tolerated and the FSA will continue to take action where necessary against firms that fail to have the proper systems and controls in place to ensure customers are being treated fairly."

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Next let's look at the "Final Notice" for this example - please read in full.

However, here are some edited extracts:

TAKE NOTICE: The Financial Services Authority of 25, The North Colonnade, Canary Wharf, London E14 5HS ("the FSA") gives you final notice that it has taken the following action:

1. THE ACTION

1.1 The FSA gave you, Joseph Cummings (“Mr Cummings”) a Decision Notice dated 12 October 2010 (“the Decision Notice”) which notified you that, pursuant to section 206 of the Financial Services and Markets Act 2000 (the “Act”), the FSA had decided to impose a financial penalty of £70,000 on you in respect of breaches of Statements of Principle 1, 6 and 7 of the FSA’s Statement of Principle and Code of Practice for Approved Persons (“Statements of Principle”) between 31 October 2004 and 25 August 2009 (“the relevant period”) in your role as director of Bridging Loans Ltd (“BLL”), and your failure to cooperate with the FSA in breach of Statement of Principle 4.  

1.2 The FSA has also decided to withdraw your approval to perform controlled functions in relation to BLL pursuant to section 63 of the Act; and to make an order, pursuant to section 56 of the Financial Services and Markets Act 2000 (“the Act”), prohibiting you from performing any function in relation to any regulated activity carried on by any authorised person, exempt person or exempt professional firm (the “Prohibition Order”) on the grounds that you are not a fit and proper person. 

2. REASONS FOR THE ACTION

2.1 The FSA has decided to impose a financial penalty on you, Mr Cummings, based upon the following facts and matters described below. 

2.2 In summary, while performing significant influence functions at BLL during the relevant period, you failed to: 

(1) act with integrity by knowingly misleading a customer; 

(2) deal with the FSA in an open and cooperative manner;  

(3) exercise due skill, care and diligence in managing the business of BLL for which you were responsible in your controlled function by not paying due regard to your regulatory responsibilities as an approved person or BLL’s as an authorised person, in relation to the entering into and administration of regulated mortgage contracts; and 

(4) take reasonable steps to ensure that the business of BLL for which you were responsible in your controlled functions complied with the relevant requirements and standards of the regulatory system, in particular in the handling of complaints, treatment of customers in arrears and responsible lending. 

4.7 As a mortgage lender authorised by the FSA, BLL was required to have systems and controls in place to ensure that it lent to customers responsibly. BLL had a responsibility to take account of a customer’s ability to repay the mortgage, prior to entering into that contract. Further, BLL was required to make adequate records of lending decisions and retain these for at least a year. 

Arrears

4.13 BLL failed to deal fairly with customers in arrears.  

4.17 You also failed to ensure that charges applied to customers in arrears were a reasonable estimate of the cost of the additional administration required as a result of that customer being in arrears. 

5. ANALYSIS OF BREACHES 

5.1 By reason of the fact and matters referred to at paragraphs 4.1 to 4.26 above, the FSA considers that you failed to comply with Statements of Principle 1, 4, 6 and 7, in that you: 

(1) failed to act with integrity in dealing with customer complaints, as at paragraph 4.22, in breach of Statement of Principle 1; 

(2) failed to act in an open and cooperative way with the FSA, including failing to comply with statutory notices, as at paragraphs 4.23 to 4.25, in breach of  Statement of Principle 4;

(3) failed to exercise due skill, care and diligence in managing the business of BLL for which you were responsible in your controlled functions, by failing to

consider the potential for a conflict of interest to arise between BLL and its customers, as at paragraph 4.26, in breach of Statement of Principle 6; 

(4) failed to take reasonable steps to ensure that the business of BLL for which you were responsible in your controlled functions complied with the relevant

requirements and standards of the regulatory system, particularly with regard to lending decisions, arrears handling and complaints handling in paragraphs

4.7 to 4.12, 4.13 to 4.17 and 4.20 to 4.22. respectively, in breach of Statement of Principle 7; 

The nature, seriousness and impact of the breach in question DEPP 6.5.2G(2) 

6.5  The FSA considers your conduct to be particularly serious because: 

(1) your failings persisted over a period of approximately five years; 

(2) you were aware that customers may not be being treated fairly, but did not take steps to intercede or investigate these matters; and

(3) through your conduct, customers, including those who already had impaired

credit histories, were put at risk of entering into unsuitable regulated mortgage

contracts, suffered unfair treatment and financial detriment. 

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The fifth and the last of these five examples showing the FSA enforcing both their "Rules" and "Principles" will follow in the next post.