The FSA -v- The OFT - Part 4

It may help those reading these posts if I suggest a way of thinking about what each post is intended to achieve. The best way I can do so is to ask if you have ever played the board game "Cluedo"? At the start you are trying to find an answer to something, and move by move you accumulate more and more information, which allow you to narrow down that answer.

That, in fairly simplistic terms is what each item in this blog is about, each item is a piece of knowledge, evidence, and although each is important, just as in "Cluedo" it will not be until the last posts that the only obvious answer becomes apparent.

It may also explain why I have adopted this method of presenting evidence in fairly painstaking detail. Eventually, those of you who log into this blog will see the latest post with what I believe is the answer - and if that is the only page you ever see, perhaps it may be the very first time you will ever have visited - you may well ask how did I get to that answer? Do I have any evidence to justify the answer? Well, yes - just sit down, have a coffee or tea, and read it all - and see if you agree.

I make those comments, because this post and the others that will follow immediately after are important, but their importance is unlikely to be immediately apparent, but I assure you, just as in "Cluedo" we need them to form the eventual answer - in this case an answer to:

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.

In the last post I used this extract from one of those Concordats 

" Banking

The OFT and the FSA will work together to ensure that a consistent and coordinated approach is taken under the Consumer Credit Act, the Financial Services and Markets Act, the Payment Services Regulations and the FSA’s Handbook in relation to potential regulatory breaches and to agree which party is best placed to lead in each case"

I am going to offer into evidence an item which involves the UTCCR, which involves banks, where terms were deemed to be unfair, where the banks accepted that they were unfair - and while that may have its own relevance in the issue over bank charges - I want to use it at this juncture to illustrate how what might be agreed in theory between the FSA and the OFT may not play out in practice. 

Why? Because that is what I believe happened over bank charges. The following item is in no way incontrovertible evidence in that issue, but it does demonstrate what I said earlier, that what might seem obvious, may not be. I will expand on that theme in the posts that follow.

However, for now just read that above extract again - and let's say you are playing "Cluedo", you have just entered a room, and you are given this information: " ... The OFT, in its role as primary enforcer of the Regulations, issued guidance in February 2001 (reissued in September 2008) (OFT 311) on its interpretation of the Regulations ..."

Now, given that comment, just on that evidence, your only clue, who would you conclude would be the party who took the lead? The OFT or the FSA?

If that was your only information - it has to be the OFT, hasn't it?

Let's find another extract, and see if that helps, this one " ...As a qualifying body under the Unfair Terms in Consumer Contracts Regulations 1999 (the Regulations) we can challenge firms that are using terms which we consider unfair."

Does that help? Well, not if you know, that both the OFT and the FSA are qualifying bodies under the UTCCR - it doesn't help at all - in fact, it leads to confusion, and doubt. It leaves a question unanswered. Is that perhaps what happened over bank charges - confusion, doubt, and a question unanswered?

But re-read the extract - it mentions the Consumer Credit Act - and the Financial Services and Markets Act - and the Payment Services Regulations - does that alter the situation? 

Let's see, here is the document I am using. I will let you read it in full for yourself.

I said above that it has its importance, but that its direct relevance to the issue of bank charges will be something I address later. All I want to establish for now is that something that may appear obvious in theory, may alter in practice.

Whilst I prepare the next set of posts which add further evidence, let me leave you with some questions. 

When as is often said, that it fell to the OFT alone to challenge the issue of bank charges - that assertion is based on the application of the Consumer Credit Act.

But think through the above example - what was involved? Powers under the Consumer Credit Act? Powers under the Financial Services and Markets Act? Powers under the Payment Services Regulations? Powers under the UTCCR? Or a mish-mash of some but not all of those, where either the FSA or the OFT could have taken the lead? If you were playing "Cluedo" would you have enough information, or might you need more clues before you offered an answer?

Cast your mind back, and when you think of what may appear to be the exclusive powers of the OFT under the CCA to address the issue of bank charges - think also of the Waiver. Who issued that Waiver, and under what item of legislation? Was that another case, where different items of legislation were in play, where different regulators operating under differing powers appeared, where one acted on its own, and the other, apart from the waiver, virtually disappeared?

Should the powers granted to the FSA under the FSMA have played a part beyond the issue of the waiver. Indeed, was the issue of that waiver, a clue to something very important, that we all over-looked?

The story of bank charges, as you look back, has involved the FSA, and their powers under that Act. But were they fully deployed? 

When the OFT became the lead in the issue, were important, perhaps vital, issues overlooked?

Was it inevitable that would be the case, because when it comes to Concordats and agreements, no matter how well intentioned - as the old saying has it "too many cooks spoil the broth!"

The next posts will offer further evidence of that conclusion and will look more closely at that other item of legislation, the Financial Services and Markets Act. 

It contained the very substantial regulatory powers that singularly allowed court cases, and cases at the FOS, to be put on hold. 

What else might it do when applied to the issue of bank charges being fair or otherwise?

The FSA -v- The OFT - Part 3

It is no coincidence that the title to this blog includes the word "Trial".  A trial is a place for evidence to be presented, and for a jury to reach a verdict, eventually by reaching a conclusion that is beyond "any reasonable doubt".

This blog has exhaustively sought to present evidence, and perhaps exhaustively is the correct word, both for me as the author and for you as a reader.  It is however the only way I know to proceed because I hope one day, the full extent of the evidence on this blog will be used to reach an answer as to whether the charges levied by banks are fair or unfair for the millions that have been affected, and to this day are still affected, by such charges - where to date there has been no definitive answer as to their fairness or otherwise.

I introduce the term "any reasonable doubt" deliberately at this juncture because I have raised the doubt that the OFT, and their use of the UTCCR was not, for me, the correct starting point to find an answer to this issue.  I have more than one reason for that conclusion, and each will form part of the evidence to follow.

What I wish to do at this stage is examine the actions of the FSA, not the OFT, and how the FSA use the powers they have been given by Parliament, and those which arise under EU Regulations.

Now some of those powers are shared between the OFT and the FSA. Recognising that fact - there have been agreements, Memoranda of Understanding, and Concordats signed by the OFT and the FSA.

Therefore I presented evidence: 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.


I now wish, through looking at the actions of the FSA, and the results of their actions, to combine Test 3 with the fourth of the Tests, ending with this evidence, namely:


Test 4 - Evidence, which must be irrefutable and unequivocal, that the Financial Services Authority expect charges to be a fair reflection of the additional administration costs faced, not a way to increase profits or offset costs from other parts of a business.


Those, and there are many, who have a detailed knowledge of this whole subject (many with knowledge much greater than mine) will recognise how that last fourth test would affect the banks and their earnings from charges, and why therefore I am dealing with this matter in exhaustive detail. But I ask those with that knowledge just to bear in mind that we do NOT yet have an answer to whether charges are fair or not - that knowledge is at present denied to us all.


Let's start here in our search for "any reasonable doubt":


In December 2009, the heads of the OFT and the FSA published a Memorandum of Understanding, incorporating Concordats and agreements signed earlier - you will find the full details in links in earlier posts - for now here are the extracts I wish to use:

• Consumer protection

Both the OFT and the FSA’s work under this theme have, at heart, the same outcome in 

mind – essentially ensuring that consumers are treated in a fair, considerate and

responsible way in their dealings with financial services firms.

Consumer protection interventions by the OFT are designed to support the development of

competitive, efficient and innovative markets, where standards of consumer care are high,

consumers have choice and are empowered and confident about making choices, and where

businesses are not unduly burdened by government regulations and are encouraged to offer

benefits to consumers beyond the minimum standards of protection afforded by the law.

The OFT superintends the working of the Consumer Credit Act (1974) and regulations made

under it.

Interventions by the FSA to achieve an appropriate level of consumer protection are

designed to address the market failures in the relevant financial market that have led to

poor consumer outcomes. It does this in such a way that the costs are proportionate to the

benefits, and to manage the risks that firms’ conduct causes consumer detriment or

damages consumers’ confidence in financial services markets. Interventions in this area are

carried out through the FSA’s Conduct of Business rules and mainly target problems of

asymmetric and imperfect information.

Interaction under this theme is wide ranging. It encompasses several concordats covering

enforcement of the Unfair Terms in Consumer Contracts Regulations 1999 (UTCCRs), the

Consumer Protection from Unfair Trading Regulations 2008 (CPRs) the Enterprise Act 2002

(EA02) and the Banking Conduct regime.

In addition the OFT and the FSA are Competent Authorities under the Consumer Protection

Co-operation Regulation 2007 (CPC), which requires national bodies responsible for the

enforcement of European consumer protection laws, designated as competent authorities,

to help each other by exchanging information and cooperating on cases which harm the

collective interests of consumers and contain a cross-EU border element. The Competent

Authorities, including the OFT and the FSA agreed protocols setting out how they should

work together to carry out their responsibilities under the CPC.

Unfair Terms in Consumer Contracts and Consumer Protection Regulations

Both the OFT and the FSA have powers in relation to unfair contract terms under the Unfair

Terms in Consumer Contracts Regulations. We coordinate enforcement action and cooperate to

ensure the effective and consistent delivery of consumer protection in this area. Under the

‘Unfair Terms’ Concordat, we set out arrangements for consulting and liaising to reduce

duplication of effort and to promote appropriate action by the body best placed to lead on an

issue. See Annex B.

The OFT and the FSA have adopted a similar approach in the Consumer Protection Regulations,

which can be found at Annex C.

Banking

The OFT and the FSA will work together to ensure that a consistent and coordinated approach

is taken under the Consumer Credit Act, the Financial Services and Markets Act, the Payment

Services Regulations and the FSA’s Handbook in relation to potential regulatory breaches and to

agree which party is best placed to lead in each case.

All of this is set out in a Concordat which details the working relationship and division of

responsibility between the OFT and the FSA, and which can be found at Annex D.

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One of the most frequent comments offered to me by those who know of this blog, and who have detailed knowledge of the subject at issue, is that the OFT have certain responsibilities, and likewise for the FSA, and that it is therefore obvious whether it is the OFT or the FSA who should address one issue as against another.

From those extracts, indeed from all of the similar Plans, Concordats and agreements twixt the FSA and the OFT, I personally do not think it is obvious - I think there is considerable room for doubt - reasonable doubt. And there is evidence to support that doubt.

"Both the OFT and the FSA’s work under this theme have, at heart, the same outcome in 

mind – essentially ensuring that consumers are treated in a fair, considerate and responsible way in their dealings with financial services firms."   - is it reasonable to assume that both bodies recognise that they have a joint, not individual, responsibility to consider how the consumer is affected and dealt with to achieve that stated outcome? 

Banking

The OFT and the FSA will work together to ensure that a consistent and coordinated approach

is taken under the Consumer Credit Act, the Financial Services and Markets Act, the Payment

Services Regulations and the FSA’s Handbook in relation to potential regulatory breaches and to agree which party is best placed to lead in each case - is it reasonable to assume that working together means using the various powers, not one versus another, to achieve the best outcome for the consumer?

Yes, I agree - whether those assumptions are or are not reasonable - we need evidence.  That is what will follow in my next series of posts. 

But just for the moment, ask yourself this one question - having read those extracts, and perhaps the whole document -  are you sure, 100% sure, that only the OFT could have acted over this issue, and equally 100% sure that it had nothing whatsoever to do with the FSA? 


Even when you read this: "... we set out arrangements for consulting and liaising to reduce duplication of effort and to promote appropriate action by the body best placed to lead on an issue. 

Or, is that perhaps where it all went wrong, the wrong body took the lead? 

Let's see what the further evidence tells us, when we look at those instances when it was the FSA, not the OFT, who took the lead.

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?

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

(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???)

Issues being argued over elsewhere - Supplementary.

I have broken from the series of posts I had intended -  to add this "supplementary" post.  I made reference earlier to some of the web sites and forums (nope, I know its fora - but it just doesn't sound right to me when I use fora even if it is correct).

One of those, perhaps the most visited in the UK is Money Saving Expert (MSE) - and whilst I am not allowed to post a direct link to the existence of this blog there - under their forum rules- I am taking part in the debate (*) which surrounds this subject of bank charges.

The issue of the use of UTCCR, the legislation used by the OFT in the court cases, and which the Supreme Court ruled against, is part of an ongoing debate, and it is an important part of the whole debate - but in my view a dead end.

To justify that belief, this is a post I made on MSE, it is supplementary to the blog series I intend (these will resume in my next posts), but it has an overall importance, so for the record and to allow those who may not access MSE::

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

Reference to the applicability or not of the UTCCR to this question over bank charges has predominated throughout the whole period and I want to attempt to both open and then close reference to the use of UTCCR (as far as I am concerned) as the way to resolve the issue of bank charges - because for me it is a dead end.

It is not possible to write a blog without it containing the opinions of the person writing it, and there is nothing whatsoever wrong with that, but in itself it is just opinions, and that is why I have laid emphasis on presenting "evidence" that support those opinions, and it is then up to those to see whether that "evidence" leads them to the same conclusions as I have.

Referring to the UTCCR as above is very much a case in point, and whilst I agree with the comment made by Alpine Star, I want to offer evidence for that comment, not just opinion, not least in order to justify my comment that it is a dead end, a route to nowhere.

Nor is that only applicable to the OFT who chose that route to ask whether they had the power to challenge the fairness of bank charges, it is equally true for the FSA, so when you hear me make reference to the FSA as the road to travel, that is true, but it has nothing to do with the UTCCR.

Let me explain, using this evidence of the FSA's equal involvement in the use of the UTCCR - and then show why it would also be a dead end if we went that way.

This is an example of the FSA using the UTCCR:
As a qualifying body under the Unfair Terms in Consumer Contracts Regulations 1999 (the Regulations) we can challenge firms that are using terms which we consider unfair. We review contract terms referred to us by, among others, consumers, enforcement bodies and consumer organisations. Our review of terms and conditions used in the RBS Group has led to The Royal Bank of Scotland plc, National Westminster Bank plc, Ulster Bank Limited,Coutts & Co and Adam & Company plc undertaking not to use certain terms that we consider unfair.

Under the Regulations we must notify the Office of Fair Trading (OFT) of the undertakings we receive. The OFT has a duty to publish details of these undertakings, which then appear on its Consumer Regulation website. We also publish a notice of these undertakings on our website. Both publications name the firms, identify the specific terms and explain why we thought they were unfair under the Regulations.

Even if firms have not given an undertaking or been subject to a court decision under the Regulations, they should remain alert to undertakings or court decisions concerning other firms as part of their risk management. These will be of potential value in showing the likely attitude of the courts, the FSA, the OFT or other qualifying bodies to similar terms or terms with a similar effect. Ultimately only a court can determine the fairness of a term and, therefore, we do not recommend terms that have been revised by a firm to address our concerns as being definitely fair. 

Source ( and full details) here:
http://www.fsa.gov.uk/pubs/other/rbs_undertaking.pdf

Amongst the evidence, this is perhaps the best example of the FSA using UTCCR, for a number of reasons:

1: It clearly involves the UTCCR.

2: It involves the FSA, and establishes that the OFT were not the only regulator who could raise issues addressed by the UTCCR, so too can the FSA.

3: It offers the evidence that the final resolution of any issues under UTCCR can only be reached in a court of law -as Alpine Star has said.

4: It involves banks, and the terms used by banks.

5: It demonstrates the relationship between the FSA and the OFT, that leads to the importance of the Concordats that they have set up between them - an aspect of great importance dealt with in the blog. Why is it important? In this instance (given my earlier comments about starting points) note that the FSA, not the OFT, are described as the Lead Organisation.

However, am I in any way drawing a conclusion from that evidence, that the FSA, given their position to deploy the powers under the UTCCR in like manner to the OFT were the starting point for the court actions over overdraft charges? An absolute and emphatic - No!

We have already established via evidence that the FSA were not empowered to regulate overdrafts, that fell to the OFT. Equally, it did not ultimately matter, because the Supreme Court ruling is explicit, and would have applied whichever body had taken the lead.

However, and it is a big however, let's repeat exactly what the SC made explicit.

From the Press Summary the SC issued:
http://www.supremecourt.gov.uk/decid...essSummary.pdf

- this was made explicit:
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.

That, for me, is final, but it has two parts.

First, that the route to determining fairness over bank charges is not to follow the road sign marked UTCCR, it is a dead end, leading nowhere - the SC has ruled on that.

But second, the SC has made it abundantly clear (I personally don't think they could have made it any clearer) that it has not ruled on the fairness of charges.

Indeed, if you read the full judgement of the SC
http://www.supremecourt.gov.uk/decid...0_Judgment.pdf

- you will find additional evidence that, using the UTCCR leads to a dead end, but - that it is not by any means the end of the issue of the fairness or otherwise of bank charges - and that is not my opinion, it is clear for me from the comments drawn from the highest court in the UK:
LORD WALKER 

It is therefore appropriate to spell out at the outset that the Court does not have the task of deciding whether the system of charging personal current account customers adopted by United Kingdom banks is fair.

Some would regard the United Kingdom system as being, in some sense at least, obviously unfair, though Mr Sumption QC (for the banks) vigorously disputed Lord Mance’s suggestion that his clients were engaged in a sort of “reverse Robin Hood exercise”. That is an imponderable question which depends partly on whether one’s perception of the average customer who incurs unauthorised overdraft charges is that he is spendthrift and improvident, or that she is disadvantaged and finding it hard to make ends meet. But it is not the question for the Court.

If the Court allows this appeal the outcome may cause great disappointment and indeed dismay to a very large number of bank customers who feel that they have been subjected to unfairly high charges in respect of unauthorised overdrafts. But this decision is not the end of the matter, as Lord Phillips explains in his judgment.

Moreover Ministers and Parliament may wish to consider the matter further. They decided, in an era of socalled “light-touch” regulation, to transpose the Directive as it stood rather than to confer the higher degree of consumer protection afforded by the national laws of some other member states. Parliament may wish to consider whether to revisit that decision. 
LORD PHILLIPS

Thus the issue of whether or not the Relevant Charges form part of the “price or remuneration, as against the goods or services supplied in exchange” within Regulation 6(2) is not necessarily academic. No attack has yet been made, however, on the level of the Banks’ charges overall.
LADY HALE

... is the real problem that we do not have a real choice because the suppliers all offer much the same product and do not compete on some of their terms? This is the situation here. But it is not clear to me whether the proper solution is to find some way of forcing the suppliers to compete with one another in the terms they offer or whether the solution is to condemn one particular model of charging for those services. Fortunately, however, that is for Parliament and not for this Court. 

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

I will allow you to form your own conclusions, but if using the UTCCR is closed, and for me it is a complete dead end - does that mean that there are no other ways of resolving this issue? For me the answer is that there are, and as is known to both MSE Guy and Mike Dailly, I formed that conclusion before the SC ruled.

What those extracts show is that Parliament is involved, and that will take us to what the political parties said about bank charges being fair or unfair - which I will address in the blog, they are important in all of this.

But, for me, the more important and outstanding question is this - which body, other than the OFT, was already empowered by Parliament - at law - both to regulate the banks, and in addition empowered - equally at law - to secure as one of its main objectives - consumer protection - securing the appropriate degree of protection for consumers?

Answer - the Financial Services Authority.

Extract:
We are a statutory body set up under the Financial Services and Markets Act 2000 (FSMA). FSMA sets out our four statutory objectives, which are supported by a set of principles of good regulation that we must have regard to when discharging our functions.

From here:
http://www.fsa.gov.uk/pages/About/Ai...ry/index.shtml

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The next posts in the blog will offer evidence of :

1) how the FSA address issues of fairness

2) why I believe the FSA are the way to resolve this issue over bank charges, and why they are already empowered by Parliament to do so

3) why, after providing the evidence for both those points, we are left with only one very simple question, namely:
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 post extracts as those posts are made.

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(*) Link to the debate on MSE.

The FSA - v- The OFT - Part 1

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.