Banks defenceless to penalty charges claims, but not for long!

[Michael Browne]

Interesting article by Steve Whiting here:

 

Important Penalty Charges Update

 

He believes that the article has the potential to change everything so far as penalty charges claims are concerned as it contains a full, reasoned, legal argument to explain why all penalty charges (even those which may not have previously been considered excessive) applied under any regulated consumer credit agreement are presently unlawful unless the customer is FIRST served with a Default Notice under Section 87(1) of the Cunsumer Credit Act 1974 (as amended) AND has failed to comply with it.

 

See full article here:

 

http://stevewhiting.co.uk/Documents/Article002.pdf

[ukaviator]

"which will from 6 April 2008, I believe, make it virtually impossible for consumers to succeed in any legal action brought to reclaim penalty charges in ANY regulated agreement"

It does look like conspiracy theorists could be right Michael.

[tifo]

excellent article but worrying for all ....

[noomill060]

Is this retrospective?

 

Surely a agreement signed under CCA1974 would continue to be regulated under that Act and those signed after April 2008 under the new Act.

 

(In the same way as the repeal of s.127 (3) is not retrospective.)

[Bookworm]

excellent article but worrying for all ....

 

it contains a full, reasoned, legal argument to explain why all penalty charges (even those which may not have previously been considered excessive) applied under any regulated consumer credit agreement are presently unlawful

 

Excellent? Hmmm.... See bolded above and ponder... Anyone wants to write a short summary as to what constitutes a penalty charge? ;-)

 

Ok, I am prepared to accept my own prejudice here, but when I read in the "about me" page this:

I have a Mensa tested IQ of 152 which apparently makes me a "genius" (i.e. in the top 3%)

it makes me a bit uneasy (and it should be "e.g.", not "i.e." ).

[tifo]

it makes me a bit uneasy (and it should be "e.g.", not "i.e." ).

 

don't worry over small things like grammer.

[Guest Macedonian]

Ok, I am prepared to accept my own prejudice here, but when I read in the "about me" page this:

I have a Mensa tested IQ of 152 which apparently makes me a "genius" (i.e. in the top 3%)

it makes me a bit uneasy (and it should be "e.g.", not "i.e." ).

 

This article explains the useage of i.e. and e.g. and suggests that the original author is correct, as it means 'that is to say' rather than giving an example.

The Latin Abbreviations i.e. and e.g.

 

The Latin abbreviation i.e., which stands for id est, means that is, that is to say, or in other words. The letters e.g. stand for the Latin phrase exempli gratia, which means for example.

[Bookworm]

This article explains the useage of i.e. and e.g. and suggests that the original author is correct, as it means 'that is to say' rather than giving an example.

The Latin Abbreviations i.e. and e.g.

 

The Latin abbreviation i.e., which stands for id est, means that is, that is to say, or in other words. The letters e.g. stand for the Latin phrase exempli gratia, which means for example.

 

Quite right, I stand corrected, can't think why I got them the wrong way round this time, I usually don't. I blame the Xmas spirits. Or something.

[tifo]

He believes that the article has the potential to change everything so far as penalty charges claims are concerned as it contains a full, reasoned, legal argument to explain why all penalty charges (even those which may not have previously been considered excessive) applied under any regulated consumer credit agreement are presently unlawful unless the customer is FIRST served with a Default Notice under Section 87(1) of the Cunsumer Credit Act 1974 (as amended) AND has failed to comply with it.

 

Having read the article, it basically states the above, i.e. that the bank must serve a default notice on every breach of contract stating clearly what they will charge if it is not remedied.

 

Do any of the legal eagles on here have an opinion on this as it seems a reasonable argument?

 

Where does this leave the rest of the 'contract' where the bank states they will make a charge etc and shows 'fees' in its Ts and Cs?

[Gez]

Well, bare with me if this gets a little 'banana jargon' complicated, but I understand it like this.. ahe hem..

 

We do as we please, stuff you lot and if you get cockey, we'll get the OFT & the Rht Hon Lipsucker & gang by the balls and make them bend to our will because we have all the money and are therefore kings of the universe.

 

..or something to that effect but perhaps a tincy bit more articulate & garnished with some artsy fartsy jargon :p

[duncan_disorderly]

I think Bookworm may have been a litle premature in his criticisms.

 

I worked in the banking industry between 1990-1995. I clearly remember when the sh1t hit the fan over the banks "churning" accounts. This is when they introduced new savings accounts with headline rates every coupple of months, and then gradually reduced the interest rates in all other existing accounts.

 

This was bad enough, but the bit that really galled me was that they made no atempt to "switch" customers to the new accounts for a better rate of return. As banks weren't regulated by the FSA in those days, there was no compulsion on them to offer "best advice" to a customer.

 

It was clear then that many elederly people had their life time savings in the bank with no other investment vehicles as they trusted the banks implicitly. The interst received on these accounts was their only additional income to their pensions.

 

TSB were the worst offenders of this, as they had millions of accounts in what were known as their red and blue savings books. The blue book was an instant access account which ended up paying 0.5% interest. The red book paid 1.5% interest, but was a 3 month notice account with penalty applied to any withdrewals without the 3 month written notice having been submitted. TSB had billions of pounds of savers money in these accounts.This was at a time when interest rates were high and new inastant access savings accounts were being offered with 9% interest.

 

As a financial adviser within the branch, and not part of the normal banking staff, I had great delight in switching as many accounts for the elderly as I could, which often landed me in hot water. This was even more true when the banking model changed from being targetted on deposit base, to being targetted on branch profitability! I was getting customers 18 times the amount of interest they were getting originally. My argument was that I was obliged to offer "best advice" to the customers, and if the bank had any problems with that to take it up with my regulator.

 

So I am grateful to Steve Whiting for exposing yet another [problem] the banks indulged in back in the early 90's, and would strongly advise a careful reading of his paper.

 

Also note the section on his website regarding direct debit mandates and how an alteration to the wording of these could prevent the bank from applying charges for unpaid DD's.

[Bookworm]

What criticisms? :-? Tifo said that the article quoted was an "excellent" article, I am not as convinced. How is that a criticism? I have also said that I have a problem with anyone (not just this particular author, of whom I have never heard up to now, so could hardly be fit to have an opinion) who needs to qualify their own standards with a MENSA result (call me old-fashioned, I find that a good argument will stand up by itself, with no need for qualifications) and I have stated that this may well be down to my own prejudices.

 

As regards the highlighted part:

"all penalty charges (even those which may not have previously been considered excessive) ", the fact is that if it is a genuine pre-estimate of loss, (and it doesn't have to be 100% accurate to be considered genuine), then it isn't a penalty. Therefore, the above sentence doesn't make sense. That's what I was pointing out in my first post.

 

Furthermore, I don't really understand the relevance of your own post to the original post, which deals with the penalty charges and the CCA74 and a supposed conspiracy theory, so if you can clarify that, that would be great.

 

Finally, not that it should make any difference, but since we're on the subject of accuracy, I am a "she", not a "he". ;-)

[tifo]

What criticisms? :-? Tifo said that the article quoted was an "excellent" article, I am not as convinced.

 

Me being gullible and will lap up anything that provides added ammunition to fighting the banks ....

 

I meant that it is good in that it highlights the default notice to be used as well as other arguments, which i was not aware of before and has not been menioned here, or if it has i missed it. It also mentions the CCA 2006 sections which may affect us all soon, again something which i did not know.

 

I have no credit agreements after 2004 ish as no-one will touch me even with a very long barge pole, so i always thought CCA 2006 does not affect me.

[Bookworm]

I have NO idea whether the argument is a valid one or not, Tifo. CCA is not something I am awfully comfortable with. But, I don't know if you ever watch Judge Judy, but one thing I have heard her say is that if you catch a person lying on one thing, it throws the whole of their statements into doubt. Likewise, if I read one glaring mistake into what is seemingly a complicated document, since I don't follow the CCA argument, I read the part I do understand and it makes me wonder... Add the conspiracy theory element and the MENSA "genius" comment, and to me, it makes things less credible, not more. That's me, my opinion, my take on it, that's all. It's not a "criticism", it's not "premature", it is how I feel about it. ;-) For all I know, the argument is a valid one! Its presentation is what makes me uneasy.

[rory32]

It also mentions the CCA 2006 sections which may affect us all soon, again something which i did not know.

 

Have you read these sections tifo? Personally, I completely disagree with the authors interpretation of these sections.

[zootscoot]

I agree Rory. The 2006 Act simply provides that the creditor must give notice of default sums. It does not in any way legitimise the imposition of penalty charges. There is nothing in the Act to regulate the level of default sums and nothing to exclude the operation of the common law and UTCCRs to regulate the level of default fees.

[duncan_disorderly]

Ooooh Bookworm, did Santa not bring you your rocking horse this year?

 

The relevance of my post was to show that the author's previous papers, writings and articles on the subject of financial services have been proven to be correct.

 

Surely the fact that he mentions MENSA on his "about me" page is neither here nor there, likewise the fact that he has been married twice and is a grandad at 42 . I do not think that these facts were meant as any pre-qualification of his articles. Is there more credibility to Tom Brennan's claims that he was a recently qualified non-practising barrister, with no experience in the legal issues being argued?

 

Unfortunately I don't possess a crystal ball, so don't know whether this argument will prove to be valid or not. As the author states, only time will tell. Likewise we do not know if the OFT POC's and the new thinking that bank deposits in current accounts are actually short term loans to the banks, redeemable at any time, will stand up in court either - and that type of lateral thinking has been lauded here.

 

Back to the article. The author claims that a default notice should be issued with remedy on all breaches of contract, before any charges can be applied on any agreement regualted under the CCA, and only if the default is not remedied within the statutory time.

 

What I would like to know is:

 

Has this been missed in the past - similarly to the idea of deposits being short-term loans?

 

If this is true, then the test case has no bearing, as the question of "penalty" is irrelevant as the banks have also breached the CCA. If the test case finds in favour of the banks in that the charges are legitimate charges for a service, then is this also irrelevant if they have breached the CCA to begin with, in not issuing a default notice and alowing time for remedy?

 

What is needed here is some analytical legal thinking from those more qualified - rather than simply dismissing the article out of hand.

 

it contains a full, reasoned, legal argument to explain why all penalty charges (even those which may not have previously been considered excessive) applied under any regulated consumer credit agreement are presently unlawful

One area that no-one here has challenged is the practice of applying a higher rate of interest to unauthorised borrowings. Some people in the past have reclaimed the unauthorised rate applied to their charges only. There is now a stong feeling, that all unauthorised interest is indeed a penalty, whilst in the past not having been considered excessive. Members of this site have been willing to accept unauthorised interest rates, because the terms and conditions of the account allowed the banks to charge it. Those same T&C's allowed them to apply default charges ;-).

 

So were ALL unauthorised interest rates also penalties? Should the banks have had to issue default notices before charging it? Why have some of the banks recently moved very quickly to equalise their interest rates for both authorised and unauthorised borowings by effectively scrapping the higher rate? How much are banks liable to lose if this is true?

 

These are areas that need to be explored by more knowledgeable minds.

 

As regards conspiracy theories, only time will tell. Many things are happening to support such theories. See the above in relation to equalisation of interest rates. Why are the government so keen to use public money to firstly support and secondly to facilitate the sale of Northern Rock? Why did the FSA relaease a statment to the banks a couple of weeks ago urging them to "protect their businesses"? Should such a statement not have read "proetect their customers"? But without a crystal ball, we may only know the outcome of these theories in the months and years ahead, assuming that they have not been spun out of all recognition to be presented as some sort of benefit to the consumer.

 

That is why I will maintain the ethos of trust no-one, especially the establishment, and I will not be disappointed.

 

Finally, not that it should make any difference, but since we're on the subject of accuracy, I am a "she", not a "he". ;-)

I was of the belief that most worms are hermaphroditic. ;-)

[zootscoot]

The idea of deposits in a bank account being loans is nothing new. It was set out in case law in 1848 in the case of Folley v Hill.

 

I don't think calling the author's credential into question is very helpful, he is clearly an established legal professional and was writing articles on reclaiming bank charges back in 1994. Having said that I'm not entirely convinced with his latest article on the need for the bank to issue default notices before charging a fee.

 

 

It's an interesting approach but I’m not convinced by his arguments.

It is ambiguous in places in that he uses the term penalty charge in its non technical legal sense which causes confusion. It ignores the fact that the banks have for the most part distanced themselves from the penalty issue and moved the focus to fee for a service denying that any breach occurs.

 

His assertion that s.87- 89 CCA 1974 apply to any breach irrespective of whether the bank chooses to serve a default notice is a somewhat strained construction of the Act. S.87 (1) does specify that a default notice is necessary before the creditor can take any action listed in (a)-(e) ie it must be given in these circumstances and there is nothing to exclude a default notice being given in other circumstances should the creditor choose to do so eg where there is a breach and the creditor is not wishing to terminate the agreement any of the ways prescribed in (a) –(e).However in those circumstances where the creditor chooses not to issue a default notice on breach there seems to be no compulsion to comply with s.88-89.

 

S.88 relates to the prescribed contents of a default notice and the effect of a default notice. If a creditor has chosen not to issue a default notice how can it be said that they are still bound to comply with the requirements as to contents of a default notice. If Steve Whiting ‘s suggestion is that it is only the effect of a default notice that is binding this is also mystifying as how can a creditor be bound by something that it has chosen not issue?

 

Also if the creditor was bound by the contents of s88 as oppose to the contents of a default notice (which it had chosen not to issue) I am not convinced by SW’s suggestion that there is a clear implication that a creditor is only entitled to require the customer to either remedy the breach (under s. 88(1)(b) or pay compensation (under s.88(1)© but not both. The difficulty with this is that the normal remedy for breach of contract is an award of damages for compensation. There is nothing in the definition section of the CCA 1974 to suggest that anything other than the normal or natural meaning of the word remedy should not be used. So this would suggest that compensation could be claimed under s.88(1)(b) and I don’t see anything to suggest that s.88(1)© would exclude this possibility.

 

AS to SW’s second clear implication relating to s.89. He states, “the customer’s position under the agreement must not be altered (by the imposition of a penalty charge, for example) unless and until the customer fails to remedy his breach of the agreement by the expiration of the 14 day period specified in the Default Notice, as to do so would be contrary to the requirement in s.89 that the breach is to be treated as not having occurred if the Default Notice has in fact been complied with.” - The difficulty here is that he fails to recognise that the ‘penalty charge’ (assuming for the moment the charge is lawful) is part of the remedy.

[caro]

I have to say that I'm not at all convinced by the importance that the author attaches to this article. Until the test case is settled, anything else is pure speculation in my humble opinion. He is not someone I've ever heard of on the campaign trail before, and most of his website is still under construction apparently. It doesn't inspire me with confidence either as a non-legal type. No doubt we'll get plenty of others jumping on to the bandwagon with opinions once the case starts and is higher profile in the media.

 

Seems we're in agreement that this may not be something to concern ourselves too much with, whatever angle we're coming from.

[Michael Browne]

Steve Whiting has posted a further article here:

http://stevewhiting.co.uk/Documents/article003.pdf

 

Where he sets out the precise mechanism of action by which the provisions of Sections 87 to 89 in Part VII of the Consumer Credit Act continue in full force and effect regardless of whether the Bank/Lender named in the agreement choose to serve a "Default Notice"

 

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[url=http://stevewhiting.co.uk/Documents/article003.pdf]