I have to cover a fair amount of evidence in this next set of posts, so I have divided it into parts to reduce the amount that has to be read at one sitting. However, it is my intention, as best I am able, to link each part so that eventually the parts form a whole, and in a manner that is continuous.
Essentially, I intend to compare and contrast the roles of the OFT and the FSA as regulators, and also illustrate not only where those roles combine, but where by not combining they leave a gap, one into which this issue of the fairness over bank charges fell, and where it still lies fallen.
A constant challenge, of which I am only too well aware, is that many of you reading this blog will say "so what"? "Why bother"? "The FSA have no regulatory jurisdiction when it comes to overdrafts and unauthorised overdraft charges."
Now, that is true and I offer no disagreement to that being true. However whenever any one of us is asked to appear in court, we are not solely asked just to tell the truth. Wisely, and with very good reason, we are asked to declare that we will tell the truth, the whole truth and nothing but the truth.
The evidence I will present in the following parts, in sequence, will address the issue of the fairness of bank charges by adopting that wider measure of judgement. That is precisely why I have broken it down into consecutive parts - to illustrate what, for me,takes us closer to the whole truth. Whether you agree after you have reviewed the evidence is up to you - you are the jury.
So, in the FSA v The OFT - let's start here:
It's an old well worn joke, so I expect you may know it. It involves a stranger asking for directions, to be told that “if that is where you want to go, I wouldn't start from here!”
For me, that answer applies very strongly to this issue of bank charges. If we want to find an answer to whether bank charges are fair of unfair, if that is our ultimate destination, maybe we have to be very selective, very selective indeed, in our starting point.
For very understandable reasons, the vast majority of people saw that starting point as the OFT, indeed as court case followed court case that starting point seemed more and more secure, until it hit the buffers at the Supreme Court. So was it the wrong starting point?
That belief in the powers and abilities of the OFT to resolve issues over charges and their fairness or otherwise, can probably be traced back to 2006 and the action the OFT took over credit card charges.
These are extracts from a BBC article in May 2006:
"The OFT said that in the future, credit card late repayment charges in excess of £12 would be considered unfair and likely to be challenged in the courts.
Charges, the regulator argued, "should only reflect the administrative costs of dealing with the default".
Not all that dramatic a statement, perhaps, when applied to just the credit card industry.
But when the OFT said the same principle would also apply to default charges on overdrafts, you could almost hear the gasps from UK's banks and building societies."
That for me was the starting point of the journey that led eventually to the Supreme Court decision some 3 years later.
You don't need me to tell you that when you programme a sat-nav with a destination you want to reach, if you insert the wrong starting point, you won't get there - ever.
Is that what happened over the issue of the fairness of bank charges? We used, (not in any way unreasonably on the face of it) the OFT as our starting point, and after 3 years, after 3 expensive Court appearances, we found we had NOT arrived at the destination we wanted to reach - a decision on the fairness of bank charges.
Let's retrace our steps, back up and go back to 2006, starting, I suggest here: a speech by Jonathan May, Executive Director, Policy and Strategy, Office of Fair Trading. It was a speech given to the British Bankers Association in November 2006.
The highlighted link will take you to the full speech, but for now I want to ask you to reflect on these extracts:
- setting unfair standard terms and conditions knowing that consumers are very unlikely to read and take on board all the detail contained in the small print. This is where our recent work on default charges comes in, to protect consumers from unfair penalties that recover more than the cost of dealing with a default.
- Our work on credit card default charges found that more than £300 million was being earned through unlawful penalty charges. Credit card issuers have agreed to reduce default charges, the majority by almost half.
Note please the use of the word unlawful, and more importantly the words penalty/penalties.
To claim something is unlawful is one thing, to establish it as fact requires that it be taken to a court of law.
The resolution of the issues over credit card charges was not decided in a court of law - it was decided in an agreement by the card companies with the OFT, so unlike the Supreme Court decision over bank charges it is not essentially the truth, the whole truth and nothing but the truth to use the word unlawful - simply because it was not decided in a court of law. It is a belief, an assertion, until a court decides.
That important distinction on the issue of credit card charges being unlawful, is well recognised by many, including Martin Lewis in the MSE Credit Card Charges - Reclaiming Guide - which has this comment in its opening remarks:
" In 2006, the Office of Fair Trading ruled these charges of up to £35 were unfair, and many believe they’re actually unlawful."
I have little doubt that the OFT sincerely believed in the use of the word unlawful, and that belief, in my opinion, prompted them to take on the issue of bank charges.
However it was a belief that had never been tested in a court of law, until the grounds put forward by the OFT for that untested belief were put to their ultimate test in the Supreme Court. You know the result.
This is the full judgement of the Supreme Court, all 40 odd pages. I will let you read it for yourself, if you have not already done so, but what I want to target now is the word "penalty".
Why? Because in the evidence given to the Supreme Court on behalf of the banks, it was something they knew had a very great importance, and that it went beyond the bounds of the ruling the Supreme Court might finally give over the main subject under debate, namely the provisions and applicability of the UTCCR (Unfair Terms in Consumer Contracts Regulations).
These extracts from the Supreme Court ruling will, I hope, explain the importance of what is or is not a penalty - not directly related to the UTCCR, but its importance at common law:
"The banks, in order to obtain a more comprehensive answer covering related issues raised in individual claims, counterclaimed not only for declarations to the opposite effect to those sought by the OFT (including an express declaration as to plain and intelligible language) but also for further declarations that their Relevant Terms were not capable of amounting to a penalty at common law
that none of the terms amounted to the imposition of a common law penalty
Andrew Smith J considered at paragraphs 295 to 324 whether the Relevant Charges were penalties at common law so as to be unenforceable for that reason. He held that they were not because a penalty at common law is a payment that becomes payable upon a breach of contract. Liability to pay Relevant Charges is not contingent upon breaches by the customers of their contracts.
Those extracts come from a Court of Law, the debates over their importance form part of a Court ruling, a ruling of the Supreme Court in the UK.
For me they confirm why - despite the sincerity of the belief held by the OFT, namely that the charges were unlawful and penalties - we eventually arrived at a legal decision which did not support those beliefs. For me they confirm why the legally untested beliefs and assertions of the OFT were the wrong starting point
However I leave you to judge the merits of those comments, and of that evidence - but bear in mind as you do so that you already know the Supreme Court ruling. My comments may not be accepted by you at all, the ruling of the Supreme Court however has to be accepted by us all.
For me, the harder task in the following parts is not to provide evidence that the beliefs of the OFT were the wrong starting point, let's just accept that their best efforts did not get us to our destination.
The mountain I will have to climb is to establish, beyond all reasonable doubt, that the beliefs, the recorded actions,and the regulatory powers of the FSA are not only the better, but the only, starting point to reach the destination we want - an answer as to whether bank charges are fair or unfair.
The following parts in this series will offer the evidence for that view, but for now let's leave the OFT behind and just simply get the FSA involved. Is it true - that they have no part to play in this whole matter?
I referred much earlier to adopting the wider horizon of looking for the truth, the whole truth and nothing but the truth.
I used that phrase against the fact that - the FSA do indeed have no regulatory jurisdiction when it comes to overdrafts and unauthorised overdraft charges. True as that may be - is it however the whole truth and nothing but the truth?
Let's start here - the agreement signed by all those who decided that there should be a test case to take to court. It involved the OFT, it involved the Banks, and it involved one other party.
This is the agreement dated the 25th July 2007. Do you notice who that other party was to that agreement?
Yep, the FSA!
So, when we say that the FSA had, and has, no regulatory jurisdiction or indeed involvement in this whole matter - is it indeed the whole truth, and nothing but the truth - or is there more to it?
Nor is it that the "more to it", as some may suggest, - is just the FSA's singular regulatory power and regulatory ability to issue the waivers which froze all outstanding claims either at the FOS or in the many courts involved in claims? That power in itself is no small matter, nor was it a minor involvement.
However there is much more to it -what that is, and it implications, will form the start of the evidence in Part 2.
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