The FSA -v- The OFT – Part 2

In this post, and those that follow, I will continue to contrast the FSA and the OFT both in terms of the powers they have – at law, and the manner in which they use such powers.

Let me start with a repeat from an earlier post of where I believe the starting point for the OFT's efforts over bank charges began. I will use another item to provide further evidence of that starting point below, in a press release from the OFT itself..

These are extracts from a BBC article in May 2006:

"Recently - and unexpectedly - the Office of Fair Trading (OFT) ripped into the banking industry's charging regime. 

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."

Do those comments reveal, and significantly reveal, how the OFT address the question of fairness over charges, namely that they “ …. should only reflect the administrative costs of dealing with the default”?

For me “fairness” over charges may entail a great deal more, and I think many of those who have been faced with charges might agree. Three easy examples:

It might involve not just the level of the charge, but the number of times it is levied. 

 It might involve how the imposition of any levies were communicated, if at all. 

 It might involve taking into account the financial circumstances of the customer.

Leave those thoughts just to stand for the moment, but they will be central to this comparison between how the OFT view such matters, and how the FSA view them.

Let's first make sure that by using only those comments from a BBC article, I am not providing sufficient evidence of the OFT position. What do they think is fair or unfair when it comes to charges, is it just the amount and how that is calculated?

This is a Press Release  issued by the OFT in April 2006, please read it in full, however these are for me the items of significant relevance:

" ... The OFT now expects all credit card issuers to recalculate their default charges in line with the principles set out in a statement published today and to take urgent action where needed to reduce the level of credit card default fees. The industry has until 31 May to respond to the statement. These principles also apply to default charges in other consumer contracts such as those for bank overdrafts, store cards and mortgages.

Where credit card default charges are set at more than £12, the OFT will presume that they are unfair, and is likely to challenge the charge unless there are limited, exceptional business factors in play. A default charge is not fair simply because it is below £12. Setting a threshold for intervention is a pragmatic pro-consumer action that is designed to give the industry the opportunity to change its practice without litigation. It is supported by detailed guidance to the industry as to how to reduce the likelihood of public enforcement (see note 2).

A default charge should only be used to recover certain limited administrative costs. These may include postage and stationery costs and staff costs and also a proportionate share of the costs of maintaining premises and IT systems necessary to deal with defaults 

Only a court can finally decide whether a charge is unfair or not. The OFT has today set out a statement of its view of the law. This has not generally been accepted by most of the eight credit card issuers... "

I said I would add evidence to the BBC article about the OFT starting point over bank charges. In that first item I have highlighted, you will find it.

Please also note for later consideration, they say that the principles they are applying to credit card charges, will also apply to bank overdrafts, store cards and more importantly - mortgages.  That takes us back to the importance of the Concordats that I have emphasised earlier.

Note also the reconfirmation of how the OFT view the "fairness" of charges - related to its price when set against allowable administrative charges.

Lastly, please note that last item, where the OFT accept that it is eventually only a court which can decide on what is fair or not.

That was the starting point, a set of principles, not a court decision, and with, for me, a narrow interpretation of how fairness or otherwise of charges should be determined.

You can find further evidence for the OFT's position via the press release link, namely a guide "Calculating fair default charges in credit card contracts" and a "guide for consumers".

At this juncture it is worth reminding you that the eventual Supreme Court decision did not rule on whether the OFT were correct in their views, they ruled on whether the OFT had the right under UTCCR to even investigate the issue of charges, and ruled that the OFT had no such right..

That is a big difference, from where the OFT started and where it ended, one which to this day has left the issue of fairness over bank charges unresolved.

In my next posts I will offer evidence of how the issues over charges have been addressed by the FSA, and you will see I believe another big difference.

One which leads 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?

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(Author's note - please accept my apologies if those links do not appear to work, and that the text font varies - it may be me, but the blog software seems to be acting up???)