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.
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