Post OFT case: Strategies for Business claims (discussion thread)

[photoman]

I've started this thread with the intention of it becoming a discussion ground for analysing the implications of the current OFT case upon Business claimants.

 

Please post and discuss any ideas and thoughts upon what the case means for Business claims, and how to progress with such from here on in.

 

The purpose of this thread is to try and develop a general strategy for business claims, and to also see if this could be applicable to all institutions or require modification for some.

 

Please keep posts relevant to the aspects of law, legal principles, statutes or case law that might be used to build a case for the unlawfulness of bank charges on business accounts.

 

If you have an ongoing case or are commencing with a Business account claim, please start your own thread in the Business claims forum, rather than posting summaries or updates here. This way we can keep this thread more concise and easier to follow for all.

[photoman]

Just to start the ball rolling, here's some views I posted on the other thread:

Here are some of my own earlier posts on the issues regards Business claims post OFT judgement.

 

Remember, these are only my own views, and are not definitive.

 

 

 

 

Originally Posted by photoman

Quote:

His judgement, stretching to 119 pages, dismisses the idea that anyone who goes overdrawn without permission is in breach of their current contract with their bank.

Therefore, he decided, overdraft fees could not be a penalty for breaking that contract, as no breach had occurred.

But what about old contracts?

Most of the banks have been busily re-writing their terms and conditions since customers in their tens of thousands started demanding that their charges be refunded.

"An initial reading of the judgement suggests that the issue of historic terms and conditions is still wide open," said Marc Gander of the Consumer Action Group.

 

Also Quote:

 

The banks will be even more upset to see that some of their other central arguments were firmly rejected.

They had claimed that their charges were in fact fees for a service, and that their customers received a service even when their cheques were bounced.

"If a bank declines to pay upon a relevant instruction, it supplies no, or no relevant, services by way of considering, processing or otherwise dealing with it," the judge said.

 

 

So...

 

If their not penalties for a breach of contract...

And, their not charges for a service....

 

Then that only leaves the option that they must be Liquidated Damages.

 

In which case by such laws, they must not exceed the actual cost or remuneration involved in dealing with such. Which we all contend that they do, and the Banks continued lack of disclosure only adds weight to the likelihood that this is the case.

 

I believe the judge backs up this contention when he then says:

 

"I am unable to accept that either the paid item charges, and guaranteed paid item charges, or the overdraft excess charges, are the price or remuneration, or even a part of the price or remuneration, that the customer pays," he added.

Quote:

Originally Posted by photoman

I just wanted to post this in regards to my opinion on the recent OFT case judgement.

 

For Business claimants concerned as to how and if this may have any influence upon claiming upon a Business account at common law.

 

This is the statement in the judgement that may have raised some concerns:

 

From the judgement:

"As for the position at common law, I accept the Banks’ submission that none of the terms which I have considered (the terms now generally used by the Banks for personal current accounts other than basic accounts and also certain of the terms used until recently by Clydesdale and RBSG) could be unenforceable on the grounds that they are penal (paragraph 323 above)."

 

However, I do not see this as being the end for Business claims at Common law (or indeed those with personal accounts set up pre UTCR99):

 

Firstly, this is only the judges opinion, and I do not believe it sets any precedent. I think such issues would still need to be decided separately.

 

Secondly, this view only refers to "personal" accounts, and does not cite anything regards other type of (such as Business) accounts.

 

Thirdly apart from some Clydesdale and RBSG terms, this view is only taken with regards current terms (and even then only personal account terms), and ignores historical terms.

 

Lastly, it is also somewhat curios that during the period of the stays many Business claimants had stays lifted, due to their contention that their claims were not subject to the outcome of this case, and were instead based upon common law. In most circumstances they then quite quickly received offers and full refunds (often for very large sums).

 

This would all indicate that the Banks are really not very confident about winning a case brought upon the grounds of common law, particularly one with regards historical terms.

 

(This is why they they all so swiftly changed their T&C's prior to having them subjected to the scrutiny of this case).

 

PM

Quote:

Originally Posted by photoman

On balance, I feel I ought to add that any decision to now continue or pursue a Business account claim (ie; one not reliant upon UTCCR99, but instead purely upon common law grounds), must be taken carefully and with much thought.

 

Although I personally am still of the opinion that contesting such claims on common law grounds for Business claims is achievable (in line with my earlier post), that is perhaps an easy stance for me to take having settled my own Business account claims.

 

The way forward for Business claims could now be more difficult, and should only continued or be entered into after due consideration and with full preparation. One should make sure that any claim is watertight, and you have read and researched all applicable law. And be aware of the potential risks involved, particularly in fast or multi track.

 

I would suggest that for now before making any decision, you watch developments, watch the various discussions and news sites, and and speak to those in the know for advice.

 

Here is Zootscoots posting on the matter generally, which at the end suggests that Business claimants should hold back.

 

OFT v Abbey and others April 2008 - what this means for you

 

This is perhaps good advice, as we are in unsure territory at the moment here.

 

There is speculation that the OFT may apply to have those sections of todays judgment referring to Common law revised, and this would change matters (hopefully more to our benefit) yet again. Although this is just speculation at the moment, and if it does turn out to be the case, who knows how long that could take ?

 

 

PM

[photoman]

Those currently claiming on Business accounts may find this thread interesting?

 

http://www.consumeractiongroup.co.uk/forum/business-claims-bank-charges/146818-enron-nat-west-business.html#post1549807

[photoman]

More Business claims recently settled.

 

http://www.consumeractiongroup.co.uk/forum/business-claims-bank-charges/118741-sytra-hsbc-business-acc.html

 

http://www.consumeractiongroup.co.uk/forum/business-claims-bank-charges/116552-help-needed-bank-error.html

 

 

All very interesting, and also contrary to the Banks recent declarations that claims at common law (ie: Business claims) have no basis or chance of success.

[shrek40]

Hello. Is there any update on the circumstances regarding business account reclaiming? I'd like to start a claim against Lloyds, but don't know where to begin.Col

[MARTIN3030]

I have recently found this;

 

OFT to review business banking services

 

 

Looks like they WERE investigated-in fact in 2002 they gave an undertaking.

 

Am currently looking at OFT archive to see what became of this.

[MARTIN3030]

Also here;

 

Business banking – unauthorised borrowing costs rocket

[MARTIN3030]

competition agency findings from their 2002 study.;

 

 

 

Investigations

Inquiry reports

2002

 

 

 

The supply of banking services by clearing banks to small and medium-sized enterprises: A report on the supply of banking services by clearing banks to small and medium-sized enterprises within the UK - Volumes 1, 2, 3 and 4

 

Summary of report (html format)

Full text (pdf format)

Adobe Acrobat Reader can be downloaded from Adobe

 

 

 

Summary

 

 

 

On 20 March 2000, we were asked to investigate the supply of banking services by clearing banks to small and medium-sized enterprises (SMEs-for definition, see paragraph 2.10) (see Appendix 1.1). There are over 3.5 million SMEs in the UK, accounting for some 55 per cent of employment and 45 per cent of turnover of businesses in the UK, and their flexibility and adaptability has been described as crucial to the strength of the economy as a whole. Many, however, as a result of their scale of operation have limited financial and managerial resources, and the quality of service they receive from their banks and the terms on which it is provided are key factors in the success of this sector.

We found the reference services to include a number of relevant markets: for liquidity management services, which include business current accounts, overdraft facilities and short-term bank deposit accounts; for general purpose business loans to SMEs; for other types of business loans (such as asset finance) to SMEs; and for other business deposits held by SMEs. We also found that there were three separate geographical markets (in England and Wales; Scotland; and Northern Ireland) for liquidity management services and general purpose business loans, but the other markets for banking services were UK-wide. There is significant market concentration particularly in the markets for liquidity management services, 90 per cent or more of such services being supplied by four clearing groups in each geographical market. That degree of concentration has changed little over the last ten years.

We also found the markets to be characterized by a reluctance on the part of SMEs to switch banks, the reasons for which included the perceived complexity of switching for little financial benefit; the perceived significance of maintaining relationships with a particular bank or particular relationship manager; and the ability of the existing bank to negotiate lower charges or otherwise respond if there is a threat of switching. A substantial majority of SMEs also prefer to obtain their purchases of liquidity management services and general purpose business loans from the same source, with some clearing banks requiring an SME to have a current account as a condition of a loan or a deposit. There is limited price sensitivity among SMEs, prices being regarded as less important than the quality of service provided and availability of funding when needed. We also noted a lack of transparency in the determination of availability and price of overdrafts and general purpose business loans.

A number of specific practices restrict and/or distort price competition. For example, there is a similarity of pricing structure between the main clearing banks, including in general no payment of interest on current accounts; a pattern of differentiation in charges by the clearing banks, with free banking generally confined to certain categories of SMEs, in particular startups and, to a lesser extent, switchers; and use of negotiation to reduce charges for those considering switching. The effect of such differentiation is to limit effective competition to particular categories of customer, preventing the benefit of competition diffusing through to the majority of customers. Taken together, it is our view that these factors indicate a market lacking effective competition among suppliers.

We also found that there were significant barriers to entry and expansion in the markets for liquidity management services and general purpose business loans. These result in part from many of the above factors, such as the unwillingness of SMEs to switch and the provision of free banking to startup businesses by many clearing banks, as well as other factors, such as the importance of reputation as a supplier of banking services to SMEs, the need for a branch network, and the existing personal customer base of the main clearing groups, from which most new SME customers are drawn. Our attention was drawn to a number of technological developments and we expect other recent developments in the supply of the reference services to have some impact on the markets, but we do not see these developments as substantially increasing competition within an acceptable timescale.

Although some aspects of quality of service gave rise to complaints, SMEs are reasonably satisfied with the banks in this respect, and the cost and availability of lending are in general not a problem. There is, however, scope for the clearing banks to improve performance in a number of ways, for example in dealing with errors and complaints.

The restriction and distortion in price competition in our view has led to excessive prices and profits. The current profits of the clearing banks on services to SMEs are over £2 billion a year and the average return on equity between 1998 and 2000 is 36 per cent compared with an estimated cost of equity of about 15 per cent. We have, however, recognized that a number of adjustments should be made to these figures. First we have made an allowance, although less than that suggested by some of the clearing banks, for certain intangible assets-the cost of recruiting and training employees, of acquiring customers and of IT software-which, though accounted for as revenue costs, generate future income and on which, in the circumstances of this case, an additional return should be allowed. Secondly, we have also allowed for the higher capital needed to support SME banking because of the risks involved in SME lending. Thirdly, we have recognized that the level of bad debts in the period we examined is likely to be below the long-term level. Fourthly, however, we have adjusted the profit figures of one of the clearing banks to recognize its relatively high costs which, like excessive profits, we do not think should be paid for by customers.

Despite the cautious approach we have adopted to a number of those factors, we have concluded that the four largest clearing groups-Barclays, HSBC, Lloyds TSB and RBSG-are together charging excessive prices (including interest forgone on non-interest-bearing current accounts) and therefore making excessive profits, in England and Wales, of about £725 million a year over the last three years with adverse effects on SMEs or their customers. For the most part, we found no such excessive prices in Scotland or Northern Ireland.

We found that RBSG, which includes National Westminster Bank and Ulster Bank as well as RBS Bank, itself has a scale monopoly situation in that it supplies over 25 per cent of the reference services. We also identified a number of practices, each carried out by some or all of the clearing banks (together accounting for over 25 per cent of supply of the reference services), which constitute a complex monopoly situation in that they restrict and/or distort price competition in the supply of the reference services. These include generally confining the provision of free banking services to startups and switchers; generally not paying interest on current accounts; giving discriminatory discounts through negotiations; and refraining from price competition in setting prices such that they more than adequately finance an efficient SME banking business.

We found such practices of the four largest clearing groups (as listed above) to be against the public interest in that they result in those clearing groups charging excessive prices to SMEs in England and Wales to an extent that would not be expected in a fully competitive situation and, in one case (NatWest), have permitted an inefficient level of costs. There are other adverse effects (in Scotland and Northern Ireland, as well as England and Wales) on choice and the level of information available to SMEs resulting from the practices of the same four clearing groups, but also from the practices of the other four main clearing groups in Scotland and Northern Ireland-NAB, BoS, BoI and AIB trading in Northern Ireland as First Trust Bank. The problems we have identified arise because the practices are carried out by all the main clearing banks in each relevant market, ie from the complex monopoly situation, and not from any action on the part of RBSG as the scale monopolist in isolation.

We believe that the adverse effects on SMEs are significant given their role in the economy, and we therefore contemplated a wide range of behavioural remedies. Our preference is to remedy the adverse effects identified by encouraging competition. We have recommended a number of measures to apply to all the eight main clearing groups to reduce barriers to entry and expansion. Primary among these are measures to ensure fast error-free switching which we regard as crucial to a more competitive market. In addition, we have recommended measures limiting bundling of services, and improving information and transparency and an examination of the scope for sharing of branches. Measures to improve switching are themselves likely to improve the ability of SMEs to shop around in the event of high prices or poor service, but we have also suggested other measures for inclusion in the industry code proposed by the British Bankers' Association for introduction in March 2002 to alleviate some of the occasional but serious concerns of SMEs about their relationship with their banks.

The behavioural measures we have recommended will over time assist entry and the development of competition, and help to reduce the current incidence of excessive prices, as well as addressing the adverse effects on choice and information. However, there will inevitably remain many constraints on SMEs switching supplier and on competition and entry. We do not believe that those measures, together with technological and other developments in the supply of the reference services, will have sufficient impact on competition within the next two to three years to ensure that the incidence of excessive prices for banking services (including interest forgone particularly on current accounts) of the four largest clearing groups in England and Wales would disappear in a reasonable period of time. We see serious objection to structural remedies. For example, the divestment of branches or SME banking businesses would potentially affect personal customers as well as SMEs, which may themselves prefer to stay with their former bank rather than lose their established relationship with it. Options of a tax or licence fee or fund would not directly remedy the adverse effects identified.

We therefore turned to the charges made by the clearing banks to SMEs. It became clear that it was necessary to give the level of prices a decisive and significant shift toward what we considered to be competitive levels. We have looked at the overall level of excessive profits and prices in services to SMEs but we have seen reason to believe they arise to a substantial extent from the benefit to the four largest clearing groups of funds on non-interest-bearing current accounts and on shorter-term, smaller deposit accounts. The increase in the ratio of SME deposits to loans, to the point where the level of deposits is now broadly equivalent to that of loans, exacerbates this effect. A requirement to pay a market-related rate of interest on current accounts would not give rise to the administrative difficulties or burdens of regulating other charges, for example of money transmission or lending.

We found that excess prices are charged only by the four largest clearing groups in England and Wales. We have recommended that the four largest clearing groups be required to pay interest on current accounts in England and Wales at Bank of England base rate less 2.5 per cent. Over the period 1998 to 2000, this would have required payment of interest of about 3.7 per cent and reduced prices to SMEs on average by about £525 million. At current lower interest rates the effect would be smaller (requiring an interest payment of about 2 per cent), as would be the benefit to the clearing banks of funds on current accounts. This remedy will result in the remuneration relating to the assets owned by SMEs (some £17 billion at December 2000) largely being received by the SMEs themselves. The four largest clearing groups should be allowed alternatively to offer SMEs accounts that are free of money transmission charges, as applies in the personal sector; or to offer SMEs a choice between the two options.

This remedy allows for the fact that we see some improvement in competition. Our findings and remedies are moreover independent of the economic environment in that our bad debt analysis has already allowed for the fact that buoyant economic conditions will be interspersed with potentially serious recessions. That analysis also encompasses sufficiently severe possibilities as to be effectively independent of the uncertain consequences of recent terrorist incidents. While we fully recognize the seriousness of these incidents, they do not bear upon whether the supply of banking services to SMEs is competitive or not, nor whether lack of competition has permitted and would continue to permit overcharging of SMEs for these services. Should interest rates fall in the event of recession, reducing the income to banks from SME deposits, the impact of our remedies would also reduce.

The remedy addresses the excessive profits and prices of the four largest clearing groups in supplying banking services to SMEs, but in no way adversely affects the terms on which banks lend to their customers. Hence, we see no justification for the clearing banks, in response, to increase money transmission charges or interest rates on loans, or reduce lending to SMEs as some clearing banks said they would do. We recognize the risk that the clearing banks will seek to negate the effect of paying interest on SME current accounts by increasing money transmission charges, but we are conscious that regulating money transmission charges-the obvious response to this risk-would represent a substantial burden. In consequence, we recommend that the four largest clearing groups should publish and provide to the Director General of Fair Trading (DGFT) information on any changes in money transmission charges for SMEs, and that users and user groups should also draw to the DGFT's attention any increases in charges or interest rates, or evidence of any decline in quality of service or willingness to lend. We further recommend that, three years after implementation of the remedies, the DGFT should review whether further measures are needed or, on the other hand, in the light of market developments, whether any or all of the measures we have put forward can be modified or discontinued.

[photoman]

VERY interesting stuff !!

 

Particularly like:

 

....we have concluded that the four largest clearing groups-Barclays, HSBC, Lloyds TSB and RBSG-are together charging excessive prices (including interest forgone on non-interest-bearing current accounts) and therefore making excessive profits, in England and Wales, of about £725 million a year over the last three years with adverse effects on SMEs or their customers.

[MARTIN3030]

Hmn Well-I have got 42 hours to dig some more and try to put something together.

[MARTIN3030]

found something-but cant seem to open it.Anyone fancy trying ?

 

Banking services for small and medium sized enterprises (599 kb)

Annexe B: OFT customer survey (681 kb)

See Competition Competition final decision (212 kb)

[MARTIN3030]

and this one;

 

SME banking

SME banking transitional (128 kb)

SME banking switching (98 kb)

SME banking behavioural undertakings (148 kb)

Dates that undertakings came into effect (41kb)

[andrew1]

found something-but cant seem to open it.Anyone fancy trying ?

 

Banking services for small and medium sized enterprises (599 kb)

Annexe B: OFT customer survey (681 kb)

See Competition Competition final decision (212 kb)

 

The first one's 211 pages long Martin , someone might not be a happy bunny if I copied and Pasted it on to the thread PM me an email address and I'll download and send it to you by email if you like..

 

 

Sorry Martin , it's half eleven and I'm popping off to the land of nod, if you want it done in the morning I'll still be happy to oblige..

Edited December 2, 2008 by andrew1

[elsinore]

As PM says Martin, VERY interesting!

 

You appear to have dug up some nuggets which I for one will be reading avidly over the next few days.

 

Els

[banker_rhymes_with]

Hello Martin!

 

I've downloaded them all, can email copies if you send me a PM and advise your email Address.

 

Cheers,

BRW

[photoman]

I too think you've stumbled across something very significant, but think musings about this particular matter could be a bit sensitive (lots of guests), so at present maybe best dealt with by PM?

 

Elsinore, Andrew1, Martin, and BRW lets converse over next couple of days by PM, get a gameplan for Martin set up, and then when sure post our findings up here for all ?

 

PM

[banker_rhymes_with]

Hello PM!

 

Elsinore, Andrew1, Martin, and BRW lets converse over next couple of days by PM, get a gameplan for Martin set up, and then when sure post our findings up here for all ?

 

I think PM, Martin and I know just the place to meet...maybe Martin can invite Elsinore and Andrew1?

 

 

Sorry Martin, it's half eleven and I'm popping off to the land of nod, if you want it done in the morning I'll still be happy to oblige..

 

23:30 and off to bed? You having a half day off or something Andrew1?

 

You should try working for the bloke I work for, he's a complete nightmare.

 

Cheers,

BRW (Self-Employed)!

Edited December 3, 2008 by banker_rhymes_with

[shrek40]

As a newcomer to the forum, can I thank everyone here for taking the time to do this. Thanks You. I searched the forum for a few hours to try and find the situation for business accounts and thought this would be the best place to start. The reason it seems unclear to me regarding the position for reclaiming (business charges) are I stumbled across a few threads where the position appeared to have changed, particullarly a post in the template letters forum where it was posted in* big red letters* not to start claiming. It seems you guys may be onto a strategy, one which I don't understand therefore may be of little help, but if I can help please let me know. Kind Regards to you all Colin

Edited December 3, 2008 by shrek40

[MARTIN3030]

Hello PM!

 

 

 

I think PM, Martin and I know just the place to meet...maybe Martin can invite Elsinore and Andrew1?

 

 

BRW thanks-I managed to sort pdfs-I downloaded a new programme that reads pdfs with firefox-its only 20% of adobe programme size too.

My thoughts are that Barclays wont be attending-since they assumed there would be vacation of this hearing based on mistake of me expecting their Skeleton 14 days after Order instead of 14 days BEFORE January hearing.

They wrote to Court to ask for a vacation-but looks like its still on.

Will update later.Hearing is at 3.35.

 

 

 

23:30 and off to bed? You having a half day off or something Andrew1?

 

You should try working for the bloke I work for, he's a complete nightmare.

 

Cheers,

BRW (Self-Employed)!

 

 

I actually was thinking of this myself.

Elsinore and Andrew 1 -will sort out.

Edited December 4, 2008 by MARTIN3030

[MARTIN3030]

Ok sorted.PM AND BRW You should see now.Elsinore and Andrew1 look forward to your input too.

[andrew1]

Ok sorted.PM AND BRW You should see now.Elsinore and Andrew1 look forward to your input too.

 

 

see? what?...

[elsinore]

Yeah, see what?

 

We understand the need for discretion Martin, but would appreciate a PM telling us WTF you're talking about.

 

Els

[banker_rhymes_with]

see? what?...

 

and

 

Yeah, see what?

 

You both have a PM!

 

Just a little something that Martin is helping me with that cannot be aired live. Nothing important.

 

Cheers,

BRW

[andrew1]

Okay thanks I'm now in and I'll just have to have a read through, Up to my eyes tomorrow but will catch up asap...

[shrek40]

I'm chumping at the bit here to start a re-claim against LLoyds.Shall I wait for you guys to sort out a strategy?You can use me as a "test" if you think that would be useful. Cheers Colin