The OFT Case

[Michael Browne]

21.18 .Posted on LB by EXC

 

Following on from Milligan's point that the court should not be concerned with the level of the price, the OFT's Jonathon Crowe freely admitted that the high level of the charges cannot be ignored and if, as Justice Smith ruled in his judgment, ''they are ancillary charges and the high level must be relevant'' although ''It's not just about price''

 

Lord Justice Clarke - the most senior of the three - agreed: ''People [consumers] are complaining about the price''.

 

Sensing the oportunity , Crowe went on to expand on the issue of the unfairness of the level of pricing - a topic that is not really for the court to consider in this hearing and one which I doubt Justice Smith would not have allowed in the initial hearing. He quoted extracts and key findings from the OFT's PCA report about the cross subsidisation of of the free if in credit model, the fact that the main revenue from current accounts comes from the poorest 20% of customers and the difficulty for consumers to avoid charges when the order of payments is almost entirely at the descretion of the banks.

 

If was refreshing to see the court allow him to address the real concerns of consumers that were not strictly part of the legal issues the court were there to deal with.

 

After the highly polished performance of Lawrence Rabanowitz, Jonathon Crowe is certainly a match for him. He is a confident speaker, well prepared and can go off script when needs be without any hestitation.

[photoman]

I think the point is this. Either a charge is fair or unfair. The simple fact that it may be considered too high does not on its own make it unfair. The judge ruled that simply because there can be no assessment that the charge is too high does not stop there being an assessment of whether or not the charge is fair.

 

To give an example:

 

You want to do a one off transaction with a bank, say, transfer funds abroad. They tell you the fee will be £50. You instruct the bank to do the transfer. You cannot claim back the £50. Regulation 6 (2) applies. However, the contract with the bank says that if they find a mistake in the request form that you must pay them a further sum of £50. This would be unfair as it is a term "requiring any consumer who fails to fulfil his obligation to pay a disproportionately high sum in compensation."

 

And that is exactly what has been happening.

The consumer had a contractual obligation to ensure that there were adequate funds available to cover a transaction.

When the consumer failed to honour this obligation then the bank had a right to recuperate their costs involved by way of compensation for losses arising.

Compensation being the operative word. ie: they had a right to recuperate the costs involved in dealing with such an event, and then anything more should be deemed disproportionate. Thus the purpose of the UTCCR is to ensure that the consumer in such circumstances is not charged a disproportionately high sum.

 

The next (and more difficult) phase would then be to determine what would actually be a proportionate and fair sum to charge in such circumstances, and how this should be assessed.

 

Without being subject to such an evaluation, then there is no accountability for the supplier to prove it is simply by way of compensation, no restriction upon what levels such charges could eventually reach, and also no option for the consumer to avoid such, due to the uniformity of charges across the industry.

[noomill060]

"The next (and more difficult) phase would then be to determine what would actually be a proportionate and fair sum to charge in such circumstances, and how this should be assessed."

 

This would be straight forward enough, but the Banks have ben somewhat coy in disclosing what the actual damages suffered are!

[Aequitas]

And that is exactly what has been happening.

The consumer had a contractual obligation to ensure that there were adequate funds available to cover a transaction.

When the consumer failed to honour this obligation then the bank had a right to recuperate their costs involved by way of compensation for losses arising.

Compensation being the operative word. ie: they had a right to recuperate the costs involved in dealing with such an event, and then anything more should be deemed disproportionate. Thus the purpose of the UTCCR is to ensure that the consumer in such circumstances is not charged a disproportionately high sum.

 

The next (and more difficult) phase would then be to determine what would actually be a proportionate and fair sum to charge in such circumstances, and how this should be assessed.

 

Without being subject to such an evaluation, then there is no accountability for the supplier to prove it is simply by way of compensation, no restriction upon what levels such charges could eventually reach, and also no option for the consumer to avoid such, due to the uniformity of charges across the industry.

 

I do not honestly think that that is a correct analysis of the nature of bank charges. They are not compensation for loss, but fees that the customer agreed he would pay. I am at a loss to see why banks should have to be under an obligation to justify their charges unless the obligation is extended to all business. The price paid for a service is expressly excluded from the UTCCR except to the extent that the charging structure is not expressed in plain language.

[TheyrCriminals]

Hi Brown1950,

 

You state in an earlier post, yesterday, that:

 

OFT now accept that paid item fees are part of a service as per Smiths judgement.

 

What do you mean by this? Is it that the OFT now believe paid item charges can not be assessed for fairness uner the regulations or just that they can not be deemed penalties?

 

TheyrCriminals

[photoman]

I do not honestly think that that is a correct analysis of the nature of bank charges. They are not compensation for loss, but fees that the customer agreed he would pay. I am at a loss to see why banks should have to be under an obligation to justify their charges unless the obligation is extended to all business. The price paid for a service is expressly excluded from the UTCCR except to the extent that the charging structure is not expressed in plain language.

 

How can they be the price paid for a core contractual service, when you are also contractually forbidden to be in a situation requiring such a "service" ?

 

Why also did Lloyds send myself letters at such time that explained the charges as such:

 

“Meanwhile I have to make a charge to cover our extra administration costs”

 

Clearly compensatory, and no mention on such occasions of them ever being fees or charges for a service.

A point that I was able to argue and successfully win with.

 

Since then, they have now tried to argue that they are service charges or fees arising in such circumstances, but either way they are still compensatory.

 

Thus, whether they be by way of compensation in the form of liquidated damages for dealing with such events, or by way of compensation in the form of charges, then either way they have arisen due to the customers failure to fulfil a contractual obligation.

 

Thus either way, by the terms of the UTCCR such sums cannot be disproportionate.

 

Since such time, the banks have all unilaterally tried the "service" charges tact, by changing the wording of their contracts and defences in an attempt to portray the same sums as pertaining to fees.

 

But, remember that back in 2006 the very same body that is bringing this case (the OFT) had this to say about such attempts to disguise penalties as services:



“Attempts to restructure accounts in order to present events of default spuriously as additional services for which a charge may be made should be viewed as disguised penalties and equally open to challenge where grounds of unfairness exist. (For example, a charge for 'agreeing to' or 'allowing' a customer to exceed his credit limit is no different from a charge for the customer's 'default' in exceeding his credit limit)”.

 

 

PM

[JonCris]

I do not honestly think that that is a correct analysis of the nature of bank charges. They are not compensation for loss, but fees that the customer agreed he would pay. I am at a loss to see why banks should have to be under an obligation to justify their charges unless the obligation is extended to all business. The price paid for a service is expressly excluded from the UTCCR except to the extent that the charging structure is not expressed in plain language.

 

I disagree with your statement "the customer agreed" They agree nothing they are presented with a take it or leave it situation. As for saying "they are free to refuse" thay are not as it does not take into account the reality of the situation.

 

Refuse what exactly refuse to open an account with one particular bank only to find the same condition AND costs are applicable to the next one & the next one & so on

 

I of course realize that in the rarefied atmosphere the banks move reality doesn't come into it as can be determined from their arguments in court

[TheyrCriminals]

Hi,

 

Do we have an update on what is happening in court today?

 

Thanks.

 

TheyrCriminals

[Michael Browne]

12.11 Posted on LB by Budgie

 

 

Deleted at the request of the OP

Edited November 4, 2008 by Michael Browne

[Michael Browne]

14.21 Posted on LB by Sapphire

 

UPDATE FROM COURT: EXC to write this up properly later. Its pretty sketchy as the phone line from EXC wasn't that good and I couldn't really hear him.

 

Well another exciting day in court, as usual its was very busy in there.

 

Crow basically finished off this morning by asking is the price that you pay for a bank charge is for a service or not.

Waller: asked would this be for an authorised overdraft.

Crow: replied that only one of the banks made a charge for an authorised overdraft.

 

Waller: would this be an ancilliary service or does it form part of the contract.

Crow: there is a string of differences between fees for unauthorised and authorised overdrafts

Waller: said would you get an overdraft refusal fee

 

Justice Lloyd actually laughed at this.

 

There was a big debate on how they reach a price for exchange of services.

 

Crow: you don't go to a bank and ask for an unauthorised overdraft and get other banking services thrown in

 

Big debate on analagies ie BOGOF's (buy one get one free) and bank only offering some services to some people and some services for others depending on an individuals financial status.

 

Justice Lloyd said Waller (not sure about this bit) brought up BOGOF's and Crow's analagies are jolly unhelpful, particularly analagies that are as unhelpful as that one.

 

Entire court fell about laughing

 

Crow continued to argue the analagy and Rabinowitz compared it to 'when you apply for silks is not the same you have a 59 page application form and need 14 references'.

 

A statement was made that an unauthosied o/draft is only an implied request and mostly are made by the customer unknowingly.

 

Crow has now finished his part.

 

Replies will now start to be made to the OFT and case will close on Thursday.

 

Apologies if no one understands what I have written, as I said the line was bad and I couldn't hear EXC very well, there were people shouting loudly in the background (typical court noises etc).

[Aequitas]

How can they be the price paid for a core contractual service, when you are also contractually forbidden to be in a situation requiring such a "service" ? Etc...

 

Sorry, but the judge did not agree with this analysis. He summarised as follows:

 

I therefore conclude that none of these provisions which the OFT has identified means that the customer is under a contractual commitment such that Relevant Charges could be a penalty for breach of the commitment, and so unenforceable at common law.

[Michael Browne]

15.54 Posted on LB by EXC

 

The procedings were very disjointed this morning so apologies if mine and Saph's posts read that way. This was due to the judges repeatedly asking Crowe for clarifications on points that he had often made hours earlier which interupted the flow of the OFT's submission.

 

Analogies again feature highly today. Justice Waller repeated an analogy Rabinowitz had made earlier in the appeal of making an application for 'silks' (a legal qualification) where a fee is charged for the consideration for the application regardless of whether the application is successful.

 

Crowe argued that the analogy was ''quite wrong'' in that an application for silks was a deliberate act, involving filling out 59 pages of forms and submitting 14 references. Whereas a request for an unauthorised overdraft was, as the banks would say, an implied request and one where the customer was often unaware that he was making. Crowe said that the banks had ''not engaged with the judgment on it's own terms'' and had simply used analogies which were not in context.

 

Justice waller repeated another analogy the banks had made - the 'buy one get one free' offer - to justify charging some customers for some services and not charging others. At this point Crowe had had enough: ''Analogies are jolly unhelpful. Particularly analogies as unhelpful as that one''. Even though this was aimed directly at Justice Waller, the entire courtroom, including all three judges, laughed.

 

As with yesterday, Crowe concentrated on 62b and the findings of the original judgment that unpaid item fees were ''not a price for a service''. He answered a question from Rabinowitz that if this is the case, Justice Smith's judgment failed to say what in fact they were. Crowe responded by saying that the judgment was only concerned with what they wernt and that the purpose of the regulations and the directives giving guidance to them was ''not to categorise each and every term''.

 

Crowe again qouted from the PCA report including figures that in 2006 the banks acheived revenues of £2.5bn in unauthorised overdraft charges and £4.1bn in net interest income (NII) on personal current accounts. Crowe explaind to the bench that NII is the surplus banks make from interest they achieve from lending on credit balances and interest charged on unauthorised overdrafts against the interest paid out on credit balances. Justice Clarke remarked ''Ah yes, they pay a pittance in interest''.

 

All in all it was another fine performance by the OFT's Jonathon Crowe. The banks will now make their reply to the OFT (although it's not clear if that will be by each bank or just lead bank QC Rabinowitz) and then they will turn to the matter of addressing the appeal by the banks on Plain Intelligable Language. It looks like it will finish as scheduled on Thursday.

[Aequitas]

I disagree with your statement "the customer agreed"

 

What I of course mean is that the customer signed up to them.

 

They agree nothing they are presented with a take it or leave it situation. As for saying "they are free to refuse" thay are not as it does not take into account the reality of the situation.

Refuse what exactly refuse to open an account with one particular bank only to find the same condition AND costs are applicable to the next one & the next one & so on.

 

That is a perfectly valid point. The trouble is that it does not help when the contract is considered in isolation. All you can do is look at the contract. It is entirely different if you are using several contracts involving different banks and want to show that there is something like a cartel in operation.

[photoman]

Sorry, but the judge did not agree with this analysis. He summarised as follows:

 

I therefore conclude that none of these provisions which the OFT has identified means that the customer is under a contractual commitment such that Relevant Charges could be a penalty for breach of the commitment, and so unenforceable at common law.

 

I do actually understand how the ruling went regards the whether or not they could be considered penalties at common law due to a breach.

However, this judgement was initially only given with regards those current (and recently rather conveniently changed) terms submitted, and then still required further consideration of historical terms.

With regards Lloyds (my own particular adversary), having looked at the historical terms the judge has still failed to actually give their previous t&c's a clean bill of health in respect of the penalty aspect.

In my own case, the t&C's along with the application and actual presentation (as quoted in my last post) of the charges were at the very least ambiguous, and I do still contend amounted to default charges.

 

This is all now somewhat academic anyhow, as (whether for this argument or some another) Lloyds decided to settle with me, rather than risk contesting such points in court.

 

PM

[JonCris]

Unfortunately the courts 'assume' that consumers are ALL free to change banks whenever they choose when in reality it is very different for many consumers particularly those on low or fixed income who have found themselves in default. As a result their findings tend to be based on what they believe is 'normal'

[photoman]

Unfortunately the courts 'assume' that consumers are ALL free to change banks whenever they choose when in reality it is very different for many consumers particularly those on low or fixed income who have found themselves in default. As a result their findings tend to be based on what they believe is 'normal'

 

Exactly.

Access to banking services has become an ever increasingly essential part of life.

It is near on impossible to survive without a bank account; most employers will not pay their staff via any other means, whilst a lot of suppliers require you have a bank account, and also penalize customers for not paying by DD etc. *

 

Also, even though the banks are supposedly in competition with each other, they are all intertwined at some level, and many customers are not often aware (especially after the recent wave of mergers) that many are of the same group.

 

So the banks benefit from a captive immobile customer base, who are often not even aware of who they are actually doing business with. The banks then maintain and take advantage of this by charging with remarkable similarity, and monitoring and increasing charges in line with each other.

 

None of them are going to break rank and upset their fellow banks or the FSA, so the consumer comes out the loser.

 

All in, this means the banks are left free to operate in a manner just like a cartel.

 

 

PM

 

 

* It is also greatly to the governments advantage to encourage this model, as it helps them combat tax evasion, fraud and other crimes, so they will not encourage or legislate to make any other means easier.

[Michael Browne]

14.09 Posted on LB

 

WEDNESDAY 5th November:LB Appeals Update

 

Just had todays telephone report from EXC:

 

 

 

It was a confusing morning in court. Rabinowitz commenced this morning in high spirits as he clearly believed he had 'struck legal gold' by pointing out what he saw as a serious misinterpretation of the directives by the regulations in regard of 'Is it an excluded assessment or a term'?

Rabinowitz spent over an hour ripping into this supposed misinterpretation.

Waller eventually pointed out : "You do realise you are completely changing your tack here?"

Clearly referring to the fact that previously the banks have stated that they agree with this 'interpretation'.

 

To help clarify, the Judges then started examining drafts of the directives. Upon realising that they only had two or three available in court, the OFT have promised to supply all their drafts for the directives. These won't be looked at during the appeal hearing but will be looked at in consideration of the Judgment.

 

It was very highly charged atmosphere in court. There was considerable disagreement from Rabinowitz about the OFT's view that Current Account contracts should be comprehensible to the 'average consumer' and that the Court should interpret these contracts as they would be by that 'average consumer' Evidently Rabinowitz disagreed with the OFTs definition of the 'average consumer' (Anyone who can gain a First at Oxford perhaps?!?)

 

Rabinowitz also attacked the logic of the OFT's assertion that 'as an unauthorised overdraft is not a deemed core term of the contract by the OFT, meaning it will fall into part 62b exemption; how can an authorised overdraft be agreed by the OFT to be a core term? He tried to question the logic of such a distinction.

 

 

Quote of the morning:

 

Rabinowitz: "If it looks like a duck, swims like a duck and quacks like a duck, then it's probably a duck"

 

Clarke: " Ahhh but is it a relevant duck?!"

 

Rabinowitz is due to carry on this afternoon. At some point tomorrow the four banks affected will seek leave to appeal on PIL.

Thanks to EXC for this LB report x

[Michael Browne]

15.43. Posted on LB by EXC

 

I don't pretend to fully understand the 'misintrepretation' of the EU directive in the UTCCR regulations that Rabinowitz had, apparently, discovered overnight, as it involved a very technical analysis of how the 1999 regulations compared to the directive. There were aspects of Rabs argument that the judges seemed to understand but appeared to me to be less convinced as to their significance. Rabinowitz discribed it as a ''gaping hole'' in the regulations and while the judges appeared to accept there might be some kind of hole, they wouldn't agree it was ''gaping''. Rab said the significance was not so much the size of the hole but ''the shape of it''.

 

He disputed the OFT's view that the typical consumer wouldn't realise that relevant charges were the price for the package services supplied. Justice Clarke said that a typical consumer would certainly realise that Net Interest Income was part of the price. Rabinowitz disagreed and Justice Smith resonded ''Almost everyone would understand that that the bank would invest their money. They wouldn't think the bank would just put it under the bed.''

 

One of the arguments the OFT used earlier in the appeal was that the relevant charges were not the price paid for the package of banking services (and therefore could be assessed for fairness) because the payment obligation was triggered by a contingency. Rabinowitz countered it by using yet another analogy, this time an estate agent who would provide the service of marketing a property but the payment obligation would only come into effect if someone bought the house and that the entire price was contingent.

 

He said that Justice Smith and the OFT were entirely wrong to define declined payment fees as not a fee for a service because there was no benefit to the customer and he again used the silk application example.

 

All in all it was a robust performance by Rab. He was very animated throughout and I got the impression he was throwing everything he possibly could at it as the appeal draws to a close.

[peter534]

Quote of the morning:

 

Rabinowitz: "If it looks like a duck, swims like a duck and quacks like a duck, then it's probably a duck"

 

Clarke: " Ahhh but is it a relevant duck?!"

 

Peter534: "Or is it a steering wheel?!:D"

[photoman]

Just to comment on the report that Michel has posted:

 

Quote:

I don't pretend to fully understand the 'misintrepretation' of the EU directive in the UTCCR regulations that Rabinowitz had, apparently, discovered overnight, as it involved a very technical analysis of how the 1999 regulations compared to the directive. There were aspects of Rabs argument that the judges seemed to understand but appeared to me to be less convinced as to their significance. Rabinowitz discribed it as a ''gaping hole'' in the regulations and while the judges appeared to accept there might be some kind of hole, they wouldn't agree it was ''gaping''. Rab said the significance was not so much the size of the hole but ''the shape of it''.

 

He disputed the OFT's view that the typical consumer wouldn't realise that relevant charges were the price for the package services supplied. Justice Clarke said that a typical consumer would certainly realise that Net Interest Income was part of the price. Rabinowitz disagreed and Justice Smith resonded ''Almost everyone would understand that that the bank would invest their money. They wouldn't think the bank would just put it under the bed.''

 

One of the arguments the OFT used earlier in the appeal was that the relevant charges were not the price paid for the package of banking services (and therefore could be assessed for fairness) because the payment obligation was triggered by a contingency. Rabinowitz countered it by using yet another analogy, this time an estate agent who would provide the service of marketing a property but the payment obligation would only come into effect if someone bought the house and that the entire price was contingent.

You wouldn't get a bill from an estate agents out of the blue (whether or not you had an ongoing sale with them), informing you that unbeknownst to yourself (and of their own volition) they had just sold your house last week, and also that they had already taken their fee.

He said that Justice Smith and the OFT were entirely wrong to define declined payment fees as not a fee for a service because there was no benefit to the customer and he again used the silk application example.

 

If Rabinowitz is trying to portray the deal as akin to others, ie. one that normal common people know, understand and accept, he has really chosen a quite an elitist and very uncommon analogy here !!

 

All in all it was a robust performance by Rab. He was very animated throughout and I got the impression he was throwing everything he possibly could at it as the appeal draws to a close.

[noomill060]

Must be a bit of a mess in there- we've had steering wheels and associated leather covers, estate agents, and farmyard poultry in the form of ducks.

 

(No doubt they will just end up chucking them all down one of the holes of indeterminate size and/or shape.)

 

Who on earth buys a leather cover for their steering wheel these days? Either stick with your plastic one or buy a proper leather trimmed one.

 

One of those cheap and nasty accessories they used to buy on a Saturday morning, spend the afternoon attempting to fit and could be guaranteed to fall off no later than Sunday afternoon, on your way back from visiting your aunty's.

Edited November 5, 2008 by noomill060

[Bigmac versus]

Wonder if Rab gets paid per hour or per analogy.

[noomill060]

**wonders if Rab drives a Morris Marina with a leather steering wheel cover stuck on with super glue and a family of ducks on the back seat**

[TheyrCriminals]

Hi,

 

Do we have an update today please on the appeal>

 

TheyrCriminals

[MARTIN3030]

Just a quick reminder peeps to use a little common sense and restraint when posting anything that can be taken as personal or libel....it goes without saying that this topic of all should remain within acceptable content-and this of course includes named individuals.