Credit Card charges vs Bank Charges

[Peterbard]

Credit Card charges vs Bank Charges

Since the SC ruling the prospect of a successful bank charge reclaim is seemingly none existent, however claiming for refund of credit card charges is still possible. Why?

Please feel free to correct me here I am new to this area and you lot have been arguing this stuff for some time but.

Bank charges were found to be lawful because

1 They are not default charges, in that they do not breach a term of the agreement, they are a fee for a service. Because of this they are not a contractual beach and therefore the charge does not have to reflect the actual costs of the service.

2 They are a core term and therefore not applicable for evaluation by the UTTCs.

Credit cards however have a different structure to their contracts in that the credit limit and the repayment amounts are part of the agreement.

So a late payment or a payment request that is over the stated limit is a breach of contract. It follows that any charge that is triggered by a breach of these terms must be a default charge.

So far so good

The reason that we can reclaim default charges on a credit card is:

1 Because they are not a genuine reflection of the costs incurred by the contractual breach

2 Because they are not a core term so therefore free to be sanctioned under the UTCCs as not being an individually negotiated charge.

So now let’s throw a spanner in the works, this from the Brandon judgement.

21. The law on this point is if the parties agree a reasonable sum to be paid as compensation for breach of contract, known as liquidated damages, the courts will enforce the agreement. The courts will not enforce a term that is a penalty for non-performance."

47. And he went on to express his view that these were a genuine pre-estimate of loss which is the test for liquidated damages and not a penalty. In my judgment that was a view to which he was perfectly entitled to come.

Examining this judgement it seems that the judge acknowledges that the charges on the CC account are not a core charge and do in fact represent a contractual breach (he talks about liquidated damages). He however held that the charges where agreed “as compensation for breach of contract”. I take this to mean that the agreement passes the test of section 5 of the UTTCs on the grounds that the charge was on the agreement.

This judgement is currently awaiting an appeal (to my knowledge), there are a couple of other controversial matters in this judgement that may also be under consideration.

I hope I am wrong in this as it opens up a whole new can of worms any comment appreciated.

Peter

[caro]

From the OFT statement on credit charges in 2006.

 

Only a court can decide finally whether a term is unfair, or at

what level default charges should be set to meet the requirements of the UTCCRs.

It should be kept in mind that other enforcers may apply for injunctions under

the UTCCRs and that the UTCCRs may be relied upon by consumers in private

claims.

 

http://www.oft.gov.uk/shared_oft/reports/financial_products/oft842.pdf

 

Can this be applied to bank charges too?

 

[Peterbard]

From the OFT statement on credit charges in 2006.

 

 

 

http://www.oft.gov.uk/shared_oft/reports/financial_products/oft842.pdf

 

Can this be applied to bank charges too?

 

 

HI C

Well it would be nice to think that it could.

Since it has been decided that the charges are contractual in nature than this would imply that they are controlled by the same market forces that control the rest of the bargain. (Competition)

However we all know that they are not, so I think that some form of external control is needed.

Various comments have been made referring to the idea that the charges whilst being a contractual term are not part of the essential bargain of the agreement.

This is a way forward I think.

It allows the banks to get out of having to repay all those charges but enables the various regulatory bodies to have a say in the setting of the charges.

Peter

[caro]

What I find odd is that all the banks have "restructured" their "service" tariffs while the case against the OFT was in progress. If they truly believed that they were lawful, I can't help wondering why they not only changed the structure of them, but even the terminology. Nobody's fooled into thinking they're any different from bank charges.

 

I think you've hit the nail on the head with the mention of regulation going forward, but I hold out little hope of historical charges being repaid wholesale - unless we can find what the SC were hinting at.

[means2anend]

Informative thread Peter...shall be reading with interest

 

rgds

m2ae

[caro]

I mentioned in the thread about the GLC case about a case that was heard at Birmingham court. I've just noticed that the person involved did post about this on the open forum so thought that interested parties might like to see if their may be anything to be learned from it. http://www.consumeractiongroup.co.uk/forum/showthread.php?85633-Castlebest-II-Return-To-The-Claims&p=3173443&viewfull=1#post3173443

[Peterbard]

HI

From the earlier reply form Conratdor

“On Peter’s general point, the OFT used to hold the view that overdraft charges were default charges but I suspect that by the time their external counsel had looked at it in preparation for the test case that changed.

But there is no doubt that credit card charges are default charges and would be subject to the test of fairness under UTCCR and this is why credit card providers caved in so easily to the OFT’s £12 threshold as the banks couldn’t convince them that it cost them any more as their analysis (minus the actual default cost figures) shows.”

Just trying to clarify this in my mind

From the Brandon judgement;

21. The law on this point is if the parties agree a reasonable sum to be paid as compensation for breach of contract, known as liquidated damages, the courts will enforce the agreement. The courts will not enforce a term that is a penalty for non-performance."

47. And he went on to express his view that these were a genuine pre-estimate of loss which is the test for liquidated damages and not a penalty. In my judgment that was a view to which he was perfectly entitled to come

Is this saying credit card charges do not fall into the exemption in section 6 ?

Does the fact that they are a default charge mean that they are precluded from being one of the ancillary charges that are part of the overall cost of the service? I do not see why it should.

I can see how it would be hard to say that it was not a charge for breach of contract and therefore must mirror the actual cost of the breach to the creditor under common law.

Cannot both the above statements be true?

Cannot the charge be both a default charge, and one of the ancillary charges included in the overall cost of the service and thus exempt from the UTCCs?

This seems to me what the judge in the Brandon judgement is saying; that it is a default charge after breach of contract but it is a genuine representation of cost “as agreed”.

I must say that I do not agree with the logic because to my mind a charge for contractual breach must conform to the requirements of common law, it cannot be negotiated, this is what is giving me the problem.

Perhaps someone can set me straight on this

 

Peter

Edited April 7, 2011 by Dodgeball

[car2403]

Is this saying credit card charges do not fall into the exemption in section 6 ?[/font][/size]

 

Yes, because of the wording in their contracts, these were deemed as default charges - the contract explicitly states these are charges for defaulting, whereas overdraft charges aren't covered in the same detail in wording of the T&C's of the account.

 

Overdraft charges - ancillary charges for a service not specifically covered in the agreement

Credit card charges - default charges, covered in the agreement, so aren't ancillary

 

Cannot the charge be both a default charge, and one of the ancillary charges included in the overall cost of the service and thus exempt from the UTCCs?

 

It's all about the wording in the agreement, as above.

[Peterbard]

Yes, because of the wording in their contracts, these were deemed as default charges - the contract explicitly states these are charges for defaulting, whereas overdraft charges aren't covered in the same detail in wording of the T&C's of the account.

 

Overdraft charges - ancillary charges for a service not specifically covered in the agreement

Credit card charges - default charges, covered in the agreement, so aren't ancillary

 

Cannot the charge be both a default charge, and one of the ancillary charges included in the overall cost of the service and thus exempt from the UTCCs?

 

It's all about the wording in the agreement, as above.

 

HI Car

Be patient this stuff is new to me.

 

"Yes, because of the wording in their contracts, these were deemed as default charges - the contract explicitly states these are charges for defaulting, whereas overdraft charges aren't covered in the same detail in wording of the T&C's of the account."

 

I understand that this is why the charges are undeniably contractural default charges and therefore must reflect the costs incurred under common law.

 

But i have difficulty seeing the difference between these and bank charges regarding what is actually stated in the agreement, niether are core charges. It could just as easily be said that they where ancilliary ( part of the banking package)charges just that they where raised on default. Does the fact that they are raised on default stop them being ancilliary charges?

 

Peter

[car2403]

HI Car

Be patient this stuff is new to me.

 

"Yes, because of the wording in their contracts, these were deemed as default charges - the contract explicitly states these are charges for defaulting, whereas overdraft charges aren't covered in the same detail in wording of the T&C's of the account."

 

I understand that this is why the charges are undeniably contractural default charges and therefore must reflect the costs incurred under common law.

 

But i have difficulty seeing the difference between these and bank charges regarding what is actually stated in the agreement, niether are core charges. It could just as easily be said that they where ancilliary ( part of the banking package)charges just that they where raised on default. Does the fact that they are raised on default stop them being ancilliary charges?

 

Peter

 

I think you're right to be confused, Peter. What I've stated above is an interpretation that we will probably never see tested in Court, as it would set a precedent - in exactly the same way that the Banks settled and/or lost a lot of claims originally when the Bank charges reclaims began, the Credit Card companies are trying to avoid a similar situation by avoiding claims and settling. I think they themselves know they are on a hiding to nothing, so that seems to suggest to me that they don't want to rely on their T&C's for a reason, and what I've said above seems the common view on this forum.

 

Of course, it might be tested properly at some time in the future.

 

I'd disagree that CC charges aren't stated in the T&C's - they clearly are, (at least in the agreements I've seen) plus the amount of the charge is stated clearly. The difference, IMHO, between these and Bank Charges is that how you incur Bank Charges is clearly outlined in T&C's, but the fee is stated (usually) in another document. Also, the CC charges are referred to as Default fees, whereas the Bank charges aren't. Hence, CC charges aren't ancillary, whereas Bank charges are. It seems from the Supreme Court ruling, anyhow.

 

I think challenges under the UTCCR take in to account all the information you have, also. For instance, if you turn over a CC statement, there are the charges outlined. This doesn't happen with bank statements - the charges are only outlined once they are incurred. Looks like these sorts of subtleties make all the difference.

[Peterbard]

HI

Yes i see that ther is a differnece in the way that they are stated in most cases i suppose , but is it always the case.

Surely some current account agreement state " if you go overdrawmn there will be a fee of £X,"

I thougt the difference was that the banks have said that this provision is part of the package, it is jujst a charge that is required on a certain event in the life of the contract.

I suppose the big difference is if they use the word default or not.

Is it an event or is it a default hmm

I think the light is begining to dawn.

 

Thanks

Peter

[Peterbard]

Hi

 

Does anyone have the definition of ancilliary charge as use by the SC

 

Peter

[car2403]

Hi

 

Does anyone have the definition of ancilliary charge as use by the SC

 

Peter

 

Yes;

 

http://www.supremecourt.gov.uk/decided-cases/docs/UKSC_2009_0070_Judgment.pdf

 

27. Against that Mr Crow’s primary submission was that the Court of Appeal had

reached the right conclusion for the right reasons. The fairness of payment obligations

falling within Regulation 6(2)(b) is exempt from assessment in point of “adequacy”

(appropriateness) only if they form part of the essential bargain between the parties. The

essential bargain constitutes only so much of the contract as the consumer can be said to

have consented to freely. The banks had misunderstood the travaux préparatoires and

drawn the wrong conclusion from them. The Court of Appeal’s decision was supported

by the decision of the House of Lords in First National Bank. The Relevant Charges

were ancillary payment obligations and were not incurred in the normal performance of

the contract. The typical consumer would not clearly recognise them as the price of

services supplied by the banks in exchange.

 

Notice that 'ancillary' isn't defined, so we have to look at the ordinary meaning of the word. From the OED;

 

–adjective

1. subordinate; subsidiary.

 

2. auxiliary; assisting.

 

I think I know where you're going, Peter. This is bad law, in effect. This is also part of the Consumer Rights Directive, BTW. See here;

 

http://www.bis.gov.uk/assets/biscore/consumer-issues/docs/c/10-1030-contingent-charges-call-for-evidence

 

21. However, on 25 November 2009 the Supreme Court overturned these previous judgements and ruled that charges for unauthorised overdrafts form part of the price in exchange for of the package of services provided to a personal current account customer. Provided that the banks’ terms were set out in plain intelligible language, the court decided that it was not open to the OFT to assess the level of the charges for fairness under the UTCCRs. The OFT had argued among other things that the essential bargain constitutes only so much of the contract as the consumer can be said to have consented to freely. The charges at issue in the case were ancillary payment obligations and were not incurred in the normal performance of the contract. The typical consumer would not clearly recognise them as the price of services supplied by the banks in exchange ([2009] UKSC 6, paragraph 27.).

22. The Supreme Court’s judgement unanimously rejected the OFT’s arguments that unarranged overdraft charges payable under a particular kind of retail bank account could be assessable for the fairness of the price. It did not reject the possibility of reviewing such terms on other grounds, nor did it reject the potential assessment of ancillary payment obligations generally. It took account of the particular factual circumstances connected with "free if in credit" accounts. It therefore focused on the case in hand and did not lay down a clear line under the UTCCRs between exempt and non-exempt price terms more generally. It did not explicitly reverse an earlier House of Lords decision which said the UTCCRs price exemption was to be construed narrowly, but, in the case in hand, gave a rather wide interpretation.

 

I've included Para 22, as it covers the points already made in this thread - the overdraft charges, themselves, aren't directly challengable under the current Law (UTCCR) as the SC Judgment puts an end to that, but could the same charges could be challengeable, generally, as part of an overall challenge on all the ancillary charges that relate to a Bank Account. I would guess that the same arguments apply, (the bank sets the charge, the customer doesn't agree to them and has no choice but to pay them when they come to use the services the charges relate to, etc) when you talk about all the services a Bank provides as part of a Bank account. (International payment fees, bank draft fees, cheque cancellation fees, etc, I'm guessing?)

[Peterbard]

Hi Contrador

Yes and this is the cause for my confusion.

I understand your definition regarding assessing the charge on the grounds as being within the function of the contract or against it. But doesn’t that just define a default.

The exemption in section 6 is based around the price of the bargain. You say that it does not matter how the charge is created as far as the UTTCs are concerned, if I read you rightly.

I would agree so it does not preclude a default charge from being exempt, it can still be the price of the bargain all be it an auxiliary one.

Is there anything in the SC judgement that says that the bank charges are not subject to the UTTCs because they are not default charges?

Isn’t it just the issue of price for the service and isn’t it just as justifiable to say that the default charges are a price for the service also just derived a different way.

Peter

[Guest]

Hi

Further to our discussion on this, it appears that there is a counter claim for charges going through the lower court tomorrow against MBNA I have seen the defence, they are claiming exemption from the UTTCs under 6.2b.

They state that the OFT have agreed that charges be set £12 and the defendant must particularise any claim that the charges represent an unfair penalty under common law.

This would seem to indicate that they are under the impression that the default charge is exempt although still possibly a penalty.

Peter

[car2403]

Hi

Further to our discussion on this, it appears that there is a counter claim for charges going through the lower court tomorrow against MBNA I have seen the defence, they are claiming exemption from the UTTCs under 6.2b.

They state that the OFT have agreed that charges be set £12 and the defendant must particularise any claim that the charges represent an unfair penalty under common law.

This would seem to indicate that they are under the impression that the default charge is exempt although still possibly a penalty.

Peter

 

That's just wrong. The OFT hasn't said that, they said they wouldn't investigate below that threshold. Interesting...

[Guest]

Hi

Yes but i wonder if this is going to be the norm for defending claims on cc,s, i mean are they going to contend that the charges are exempt from th UTCCs as they are part of the cost of the service but admit they are a default charge. Then try to justify that the charges are a fair reflection of costs under common law.

This would surely fail wouldnt it .

Well i dare say we will see at county court level anyway

Peter

[car2403]

Hi

Yes but i wonder if this is going to be the norm for defending claims on cc,s, i mean are they going to contend that the charges are exempt from th UTCCs as they are part of the cost of the service but admit they are a default charge. Then try to justify that the charges are a fair reflection of costs under common law.

This would surely fail wouldnt it .

Well i dare say we will see at county court level anyway

Peter

 

I'm not surprised they are trying it, given the SC ruling, but it surely can't work - IMHO, these are default charges therefore penalties and we know from past members that the cost is over inflated to their actual costs.

 

We'll have to see.

[the_shadow]

I'm not surprised they are trying it, given the SC ruling, but it surely can't work - IMHO, these are default charges therefore penalties and we know from past members that the cost is over inflated to their actual costs.

 

We'll have to see.

 

Depends on the pleadings... we've seen people on here have credit card claims thrown out by judges who believed themselves that the SC ruling applied also to CC DESPITE being told about the OFT's investigation and decision and the maximum threshold of £12 applying.

 

S.

[Guest]

Depends on the pleadings... we've seen people on here have credit card claims thrown out by judges who believed themselves that the SC ruling applied also to CC DESPITE being told about the OFT's investigation and decision and the maximum threshold of £12 applying.

 

S.

 

Yes exactly that has just happened again over the way.The court acknowledged they are defaault charges but still exempt frem UTCCn6.2 and where then convinced they are fair under common law.Found for the creditor,looks like a patern is emerging,same as Brandon

[andrew1]

Hi

Further to our discussion on this, it appears that there is a counter claim for charges going through the lower court tomorrow against MBNA I have seen the defence, they are claiming exemption from the UTTCs under 6.2b.

They state that the OFT have agreed that charges be set £12 and the defendant must particularise any claim that the charges represent an unfair penalty under common law.

This would seem to indicate that they are under the impression that the default charge is exempt although still possibly a penalty.

Peter

 

Any idea what happened in this case Peter?

[andrew1]

Thanks Peter, sucks doesn't it? So in essence trying to reclaim credit card charges is still a battle and a half and unlikely to generate a return?

[Guest]

Thanks Peter, sucks doesn't it? So in essence trying to reclaim credit card charges is still a battle and a half and unlikely to generate a return?

 

 

 

Hi Andrew

Yes it does not bode well for some of us who are in the process of making claims.

Makes you wonder if the whole penalty/UTCC route is still an option?

Perhaps we will start seeing some success in demonstrating that these charges are unfair under section 140 of the act.

Notice the judge again mentioned the fact that these disputes have to be settled on a case by case basis. This fits well with the requirements if the unfairness regulations.

I think a better line of attack is to demonstrate how a particular regime of charges applied to a particular account were unfair, in that they may have unreasonably prejudiced the lender.

Peter

[elsinore]

I think a better line of attack is to demonstrate how a particular regime of charges applied to a particular account were unfair, in that they may have unreasonably prejudiced the lender.

Peter

 

Hi Peter and Andrew,

 

This is exactly the approach that I took with a recent business account claim with LTSB.

Not CAG v The Banking Industry, or even Me v The Banking Industry, but Me V LTSB Wigan Branch and in particular the manager who handled my account.

The claim was entirely personalized in that I was able to demonstrate, and quantify in monetary terms, when and how the bank’s actions were to my detriment. I had many instances of the bank’s decisions which were illogical, inconsistent and unfair, supported by documentary evidence.

Once the bank knew this, it tried to defend its position with the fatuous contention that “lending officers use personal discretion when deciding whether or not to meet payment requests on a customer’s account and the Bank would not expect to see total consistency” The problem for the bank was that it was a case of total inconsistency!

During a bout of correspondence, they asked to see some examples of ‘unfair’ actions but I declined, saying that they would see them when I submitted a witness statement.

In the end they folded and made me an offer, which I accepted.

The trouble is, I will never be sure why they folded (the bank of course states that it was a commercial decision). There were other aspects to the claim which they would have found very difficult to defend, like no proper T&Cs, but I like to think the unfairness approach was right.

 

 

Els

[caro]

Thanks Peter, sucks doesn't it? So in essence trying to reclaim credit card charges is still a battle and a half and unlikely to generate a return?

 

My understanding is that cc charges are mostly being paid back without the need for going to court. I just think the person in this case used the wrong arguments as far as I can see. Unless I'm missing something which as we all know is quite likely.