Lloyds "Victory" - A View of the Judgement

[photoman]

http://www.consumeractiongroup.co.uk/forum/welcome-our-forum/90791-we-need-your-help.html

 

Everyone go here.

 

If you have any old T&c's then CAG is compiling a library of them.

 

Look in your cupboards, your attics, in the bottom of the cats litter tray.

 

Ask your friends and familly (even if they're not taking any actions themselves), if they have any also?

 

Even if they're not of use to you directly, they may help someone else ?

 

Maybe, put the link into your own signatures also?

[sheppie D]

Thanks rbrears

 

This really helped clear things.

The media reports had started to get worried.

Great stuff.

 

Found this Helpful too!!

The Lloyds victory in perspective

 

Sheppie D

[GLADSTANES]

Dear All,

 

Many thanks for this useful input.

 

Could someone please tell me the answers to these questions which I believe are crucial to any defence that LTSB may compile.

 

1. How does LTSB decide whether to pay or return an item?

 

2. As previously touched upon, if an item is returned unpaid then how can LTSB justify charging for it, because it is clearly NOT A SERVICE to the account holder. Therefore the account holder is being charged for NO SERVICE and according to LTSB'S current personal terms and conditions this could conceivably happen every working day. Unlike overdraft excess fees which are capped at 90 pounds per month these charges are capped at 105 pounds per day.

 

3. What is the difference between going overdrawn with no overdraft facility and not having enough money in your account to cover a payment?

 

 

It seems to me that the answer to 3. is entirely at the whim of LTSB and therefore affects the amount charged.

 

 

"Never give up, never give up, never, never, never."

 

W.S.Churchill

 

 

 

GLADSTANES

[ninekey]

Agreed, Gladstanes, these are exactly the lines we need to be thinking along and developing now.

[Memnoch]

One thing puzzles me, like many other Lloyds TSB customers, I have paid a monthly fee for the running/administration costs of my account since it opened.

 

This fee started at £3.00 per month then went up to £4.00 per month then £7.00 per month. I currently pay £15.00 per month for administration of my account.

 

This in mind surely this should cover a 'fee for a service' if inadvertedly I went overdrawn or bounced a cheque/DD etc.

 

Any idea's, could this be used as an arguement, I am quite sure a large number of Lloyds TSB customes pay this monthly 'fee' too.

[ninekey]

Yep, I think this element should feature in our argument. The monthly fee is expressly described as a service charge and that rather informs how we should interpret the remaining suite of charges, which are not so described!

[Mistermind]

I agree with all that rbrears says but the attack on the service / 'no breach' defence needs to be more pointed, in my view. The Judge's 'no prohibition' analysis seems quite well reasoned: quite difficult to dent, I think, where a borrower's notional or automatic requests to extend borrowing are considered by the Bank and then approved. It is certainly arguable that - as the Judge ruled - this sequence of events can take place without either party breaking the contract, strictly speaking.

 

So, if these events do not amount to a breach of contract, they must amount to charges for services rendered? Erm no ...

 

For me, the reasoning falls down in relation to unpaid item charges. Where, say, a DD request is presented for payment, but declined, there can be no element of 'service' to the customer in that. The essence of 'service' (and the justification for a charge) is that the customer derives some benefit from the work undertaken by the Bank. Presumably, the Bank and this District Judge take the view that there is an element of service merely in the Bank being asked and in considering (albeit ultimately declining) such a request! Pah!

 

I do wonder if, on legal authorities, there can be any middle ground between an out and out breach of contract on the one hand and a provision of service (to the customer) on the other?

......

 

To explore ninekeys' point above, lets look at two other contractual situations:

 

(1) BUPA contract: "We insure your medical expenses. BUT if you have a pre-existiing illness and you choose not to disclose this to us as requested, this omission constitutes breach of contract. There is no remedial clause for this breach. Your entire medical cover is invalidated, the rupture is final with no retrospective refund for premiums already paid."

 

(2) EMPLOYMENT contract: "We employ you to work 9 to 5. If on any day you are not present by 10 am we do NOT deem to be an irreparable breach of contract justifying dismissal. Instead we exercise the remedial clause of charging you £38 for each and every breach of this attendance rule. "

 

Far be it from me to be devil's advocate, but forewarned is forearmed.

Could banks argue that case (1) is a hard-and-fast contract,

whereas case (2) merely laid down targets and aspirations?

And that the bank's case is nearer (2) than (1)?

The fragmentary T&C contained inside Judge Cooke's Approved Judgment included this Lloyds quote in para 15:

 

"Overdraft excess fee - We charge this when you go overdrawn and don't have an overdraft facility, or if you go overdrawn above an agreed overdraft....."

 

Ominously both the words WHEN and IF are used, as if both parties expect this to happen at some stage, potentially suggesting that breach is inevitable, almost the norm, and the remedy also the norm.

 

In Dunlop v Garage 1910, it would be interesting to check if their contract stipulated any remedies IN ADVANCE?

[rbrears]

These are the only older Lloyds T&Cs I have been able to find.

July 27 2003

http://web.archive.org/web/20030727101005/http://www.lloydstsb.com/rates_and_charges/current_account_charges.asp

Oct 28 2004

Increase in charges amount

http://web.archive.org/web/20041028105038/http://www.lloydstsb.com/rates_and_charges/current_account_charges.asp

May 13 2005

Increase in charges amount

The relevant text also changes from:

1. Any unauthorised borrowing means extra work for us, we cover this by charging you the following fees:

to

2. Please make sure you have enough cleared funds in your account at the close of business the day before the payment is due to cover any payments that you wish to make.

http://web.archive.org/web/20050513221428/http://www.lloydstsb.com/rates_and_charges/current_account_charges.asp

Also note that these terms say, in respect of the Overdraft Excess Fee - “We will charge this when you go overdrawn by £10 or more above any agreed limit or £10 without any agreed limit. And in respect of the Unpaid Item Fee – “You’ll be charged this fee whenever there is not enough money in your account to make a payment…”

The fee is incurred at the time the overdraft is created or the lack of funds exists – no mention of it being a fee for any service and no mention of anything actually done that could constitute a service of any sort. So it is a charge triggered by circumstances and not by anything doine by the bank. If the bank had to provide a service for this fee then the T&Cs should say so and they don't because there isn't one - and as I have said the "service defence" is the most artificial interpretation of what happens in reality without a doubt. Since the previous T&Cs referred to “extra work for us” and this has not been specifically rebutted in the amendment to the T&Cs on the basis that the fee is now for a service then isn’t it acceptable to presume that the charges still relate to “extra work” in 2005 as they did in 2003 and 2004?

[african_igbo]

Excellent - rbrears I hope a Bs customer can do the same I bet the Lloyds Customers are smiling from ear to ear So great job.

[angelcat]

In relation to courts ordering a stay in proceedings, I would like to bring my thread to your attention: http://www.consumeractiongroup.co.uk/forum/lloyds-bank/92222-advice-wanted-lloyds-court.html. I am seeking advice on what to do in this situation, and if anyone else is in the same situation, the advice posted may be of help.

 

Thank you.

[steven4064]

In the OP, rbrears says, "there is a very strong argument to follow the line very firmly stated by the OFT regarding cloaking the charge to make it look like something else." Does anyone have a reference - it doesn't appear to be in the April 2006 report (at least as far as I can see)

 

Steven

 

If this post is helpful, please click the scales

[steven4064]

Found it - please ignore previous post:

 

"4.21 The analysis in this statement is in terms of explicit, transparent default fees. 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.12 (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.) The UTCCRs are concerned with the intention and effects of terms, not just their mechanism."

Steven

[Mistermind]

Case A - account holder's cheque is bounced, with a charge levied. This is a pure punishment with no benefit for the account holder.

 

Case B - account holder's cheque is manually honoured by the bank manager, thereby incurring a risk of bad debt for the bank. Again a charge is levied. Are we to say both charges are identical? That Case B is a case of pure punishment and no benefit? Are we to say the account holder would prefer the Case B cheque to be bounced same as in Case A? That Case A customers do not scream the house down?

 

Far be it from me to feed a hint to bank barristers. But how can any barrister possibly miss the obvious component of service in the Case B charge?

[photoman]

Case A - account holder's cheque is bounced, with a charge levied. This is a pure punishment with no benefit for the account holder.

 

Case B - account holder's cheque is manually honoured by the bank manager, thereby incurring a risk of bad debt for the bank. Again a charge is levied. Are we to say both charges are identical? That Case B is a case of pure punishment and no benefit? Are we to say the account holder would prefer the Case B cheque to be bounced same as in Case A? That Case A customers do not scream the house down?

 

Far be it from me to feed a hint to bank barristers. But how can any barrister possibly miss the obvious component of service in the Case B charge?

 

Understand your point.

HOWEVER. So far no bank has yet proven that in scenario B manual intervention has actually occurred.

Case B is just as likely to have been an automated procedure too. It is commonly known, that although an account has an "overdraft limit", there is also an additional "buffer zone". Within this zone payments are still cleared automatically (albeit with a charge), without the need for manual intervention.

Additionally, in scenario B, there is also a much greater level of Unauthorised O/D interest charged, which should be recompense enough for allowing any additional lending.

[Mistermind]

Understand your point.

HOWEVER. So far no bank has yet proven that in scenario B manual intervention has actually occurred.

Case B is just as likely to have been an automated procedure too. It is commonly known, that although an account has an "overdraft limit", there is also an additional "buffer zone". Within this zone payments are still cleared automatically (albeit with a charge), without the need for manual intervention.

Additionally, in scenario B, there is also a much greater level of Unauthorised O/D interest charged, which should be recompense enough for allowing any additional lending.

 

Officially publicized buffer zones are also automated by IT, in any case cheques honoured when overdrawn within the buffer zone are not regarded as breach and attract no charge.

 

Manual intervention by the manager is easy to prove. If it comes to that, the intervention steps by an authorised manager is easy to demonstrate with a series of screen prints, and if necessary seated in front of the bank's PC.

 

If the intervention to pay bad cheques as an exception, rather than to bounce them as a rule, is NOT manual intervention, then what kind of intervention was it? Was it IT automating artificial intelligence decision, i.e. a hidden super buffer zone with the more credit-worthy customers allocated a bigger unannouced tolerance? Current bank employees could comment, but I very much doubt the existence of such pre-set confidential super buffer zones.

 

There is still that other argument, that in honouring a bad cheque the bank took on the risk of a bad debt. To that extent it was a benefit and a service rendered to the customer, with a service charge to match. Without question a rigid £30 charge to pay a cheque overdrawing 13 pence would be harsh, but a £30 charge to risk honouring a £500 cheque could be viewed in a different light.

 

A thorny area I believe, unsuited for rah rah rah cheering -- the point on which Kevin took the heaviest beating.

[adamc6671]

There is still that other argument, that in honouring a bad cheque the bank took on the risk of a bad debt. To that extent it was a benefit and a service rendered to the customer, with a service charge to match. Without question a rigid £30 charge to pay a cheque overdrawing 13 pence would be harsh, but a £30 charge to risk honouring a £500 cheque could be viewed in a different light.

 

 

Hi Mistermind - very much like your style and wording on these posts - makes very good reading!

 

Would I be right in saying that as soon as one's a/c goes into unauthorised overdraft the bank greatly increases the rate of interest it applies to the overdraft? If that is the case, then that surely covers the risk of bad debt.

 

As far as actual cost of administering defaults is concerned, I used the following in my prelim letters for claims. This is based on a fairly recent working knowledge of business costing systems (though not directly in the financial field) -

 

Quote -

" . . .I note from the ‘Intervention’ printouts that you have kindly supplied me with that all of these charges were ‘system generated’ fees, which therefore required no manual intervention. Therefore all you would be lawfully entitled to charge me for would be a few seconds (at most) of computer time. This could be fairly charged at £120 per HOUR, which rate includes hardware, software, setup, and operating costs. This demonstrates that a ‘fair’ charge for each of my defaults would be no more than 20 pence. If you dispute this calculation, please either supply me with the previously requested full breakdown of your costs incurred in managing the defaults upon my account, or . . . . . . . ."

- End Quote

 

 

A similar calculation can be made for manual interventions, by a member of staff earning £7 per hour which rises to a cost of no more than £12 per hour once 'on-costs' have been applied, showing the cost to the bank to be no more than about £1.

 

 

If the above calcs are reasonable, and I'm fairly sure they are, then surely one still has very strong case for the overcharging argument, whether under the UTCCR or otherwise?

 

 

Would be very grateful to read what anyone else thinks. Adam.

[Mistermind]

Far be it from me to say anything to help banks, I am famously ferocious in opposition to Shylock institutions. But any arguments easily articulated here, can and will be put up by bank barristers in court -- such as the NatWest team of six yesterday led by a legal superstar. Forwarned is forearmed.

 

Insurance against bad debt

 

Banks charge authorised overdrafts in the region of 1% per month, unauthorised o/d in the region of 2% per month I think. Banks are not obliged to honour unlimited overdrafts repayable at some time in future, they are commercial concerns not charities. Assessment of bad debt risk, and tolerance of risk, is a matter of individual judgment for the money-lender. In the high street you could cash guaranteed cheques at 12% to 15% per month interest. So if anyone wishes to cash my unsecured cheques at 2% interest per month, please PM me.

 

Costing manual intervention

 

In practice manual override would involve a manager or assistant manager reviewing the account's past history and current circumstances, possibly the junior seeking permission from the senior. It would be very difficult for outsiders to present hard evidence rather than surmise, to convince a judge.

 

Challenging Service Fee

 

Where a charge is accepted as a service fee as opposed to a penalty charge for breach of contract, then 3 points arise:

 

(1) Penalties have to be charged at cost price (Dunlop v Garage 1910), but service fees do not (ask your solicitor who charges £390 per hour). There is no law against service fees making a profit.

 

(2) UTCCR 1999 Section 6.2.b contains the fatal word "adequacy" -- Judge Cooke ruled that this word empowered a court to rule a price as unfair for being too low, but not unfair for being too high. The judge made clear he suspected what the intention of the Regulation probably was, and in lawyer's roundabout language he deplored the present physical wording, but the written law is the written law. If anybody interprets Para 40 of the Approved Judgment in a different way please say so. If the judgment was sound, then the UTCCR 1999 touted for over a year is inapplicable.

 

(3) Supply of Goods and Services Act section 15 -- the last chance.

Again this Act does not prohibit the making of a profit. The judge pronounced using a double negative, that if the bank charge was similar to all UK banks then the price was not unreasonable, i.e. a prevailing market price is reasonable. I have no answer to that, except to say that £30 charge is unreasonable because the bank next door charges £3 for the same. Unfortunately not quite next door, rather across the water in Dublin. Allied Irish Bank in Dublin charges £3, but their UK branch charges £20, so prima facia there could be a case of cartel price-fixing going on in the UK. Proving this would be a huge task. Tom Brennan's team have already done price comparisons all over Europe, perhaps this is something barristers of his calibre might take on, I am not even a lawyer.

 

Past History of Penalty Charges

 

While contrasting prices in space terms, it is also possible to make contrasts with UK bank practice in recent history. In 1970 the bounce charge was £2, not £38. No way has inflation gone up 19-fold. In 1970 or even in 1980 or 1985 the bouncing procedure was 100% manual, and much more deserving of a charge than now. I posted a piece on the history of penalty charges, going into the former physical burden of nightly transporting cheques from one branch to Crawley and Lombard Street, then forward onto the target branch, and if bouncing the laborious reverse journey.

 

History shows how advancing IT automation every year reduced costs for banks, who every year raised charges for customers. Unfair charges are a recent and UK-specific phenomenon, they have NOT been unfair since Harold Wilson, or else your grandmother would have started a CAG movement then. Those who can remember back to 1970 will agree. Unfair contrasts in space and time COULD make an impression on the judge, but no such submission was made at the trial.

[Memnoch]

I was wandering if anyone can advise, does the following case law hold any relevance with regards to people now hoping to go to court against Lloyds TSB ?

 

Lord Elphinstone v. Monkland Iron and Coal Co [1886], Lord Watson stated that: "There is a presumption (but no more) that a charge is a penalty when a single lump sum is made payable by way of compensation, on the occurrence of one or more or all of several events, some of which may occasion serious and others but trifling damage".

 

I think that the events that could be used are the events that made you go overdrawn in the first place, and the damage such as Lloyds having to pay the item for you or in most cases, send you an automated letter to tell you they are not paying it.

 

Any thoughts ?

 

I know that this case may be talking about physical damages and compensation, but theoreticly its the same principles.

[Memnoch]

Charge for a service huh, could we turn a 'Charge' into a 'Penalty' by way of caselaw ?

[rbrears]

Hi Memnoch,

 

I dont think the case is relevant. It is dealing with circusmstances where a contract requires a single payment for any breach, whether it be trifling or serious. The point is that the payment cannot represent a proper estimate of damages when it applies where there is a trifling financial loss as a result as well as when there is a substantial financial loss.

[sparklyd]

If as Lloyds state, the charges they levy are a fee for services rendered, can they charge interest on a fee, and can they then impose another fee for the consequence of the service they have rendered, i.e charging you for going above overdraft limit because they have charged you for refusing a standing order???

 

I have to admit I am lost, because surely its an issue of semantics over whether something is a fee or a charge, and this judgement demonstrates the need for claimants know their stuff, which my lack of understanding of the judgement suggests I don't? Did Berwick make an error by stating that he didnt believe he breached terms and conditions if a cheque bounced? I would have thought that as he wrote the cheque, he should have ensured that the mones remained in his account to honour the cheque until it was presented or the six months expired, whichever is earlier. Is it not illegal to write a cheque if you know that funds are unsufficient,or take out monies when you know that you have a cheque oustanding for payment?

 

Don't shout at me, as I am just playing devil's advocate, and I am as great as bouncing cheques as the next person so I am not judging, i am just trying to find out the legalities of writing cheques to workout if this could help to differentiate between a fee and a charge.

 

I just don't see how a deduction from your bank account which incurs interest, causes further charges, and causes people like me to spiral into debt can be classed as a service?? Why does the legislation that determines you can't profit from a penalty, not apply to a service fee that incurs interest, and is it legal to charge interest on a fee for a service?

 

I'm sorry if this is deemed as hijacking your thread, I am not completely up to speed with site etiquette yet. And I just thought it is relevant to the judgement as i am just about to take on lloyds, and was confident I knew what I was doing until I read the actual judgement!!

 

Cheers

 

Sparkly

[Mistermind]

Far be it from me to invent legal definitions, lets say what the answer should be if you disagree with a submission by a Lloyds barrister.

 

A penalty charge produces no benefit for the recipient, as in the Garage penalised by Dunlop in 1910, as in a customer with his cheque bounced. By law such a charge cannot make a profit, i.e. it must be levied at cost price -- if you can ascertain it.

 

A service fee is justified by a commercial service rendered, e.g. a bad cheque honoured, at a certain risk of bad debt to the bank, and incurring bank manager manual consideration time. It is a commercial transaction to the extent that the customer derives a benefit, and is what the customer prefers. Should the customer wish never to be overdrawn no doubt the bank can arrange to bounce in all overdrawn circumstances. The crucial difference with the service fee is that it is a business payment, and by law can make a profit, as your solicitor can make a profit when he charges you £190 per hour for a service rendered, by your prior agreement.

 

Just one possible position, not saying it is correct. But if Lloyds barrister says the same in court, be ready with an answer.

[paulsuebank]

Hi thanks for an excellent and informative post.

 

I have read the link you made to LLoyds business terms thank you. One concern I have is that you refer to:

 

Looking at the Lloyds T&Cs (link above) re business accounts paragraph 6.2.1. appears to me to be exactly the same:

 

“You should only overdraw your account with an overdraft limit agreed in advance with your Relationship Manager”. The words “ONLY” and “AGREED IN ADVANCE” constitute exactly the prohibition the judge was talking about.

Good point if we are able to leave it there - Then in the very next para 6.2.2 in lloyds Tcs&Cs they say:

 

6.2.2 They may at thier sole discretion permit us to exceed any agreed overdraft limit or overdraw our account where an overdraft limit has not been agreed in advance with our relationship manager. Such amounts will constitute unauthorised borrowing and may incur unauthorised borrowing interest and unauthorised borrowing fees.

 

Does this not cover them somewhat?

 

I hope not (I'm about to hear from my local court having been refered by MCOL) and will soon be making the case in my court bundle

 

Any further thought will be gratefully received

Cheers Paul

 

 

[paulsuebank]

I just don't see how a deduction from your bank account which incurs interest, causes further charges, and causes people like me to spiral into debt can be classed as a service?? Why does the legislation that determines you can't profit from a penalty, not apply to a service fee that incurs interest, and is it legal to charge interest on a fee for a service?

 

Excellent summary here Sparkly - The challenge now is : How do we make this into a water tight case for court - both for Business and Consumers alike?

 

I'll be watching for replies to your question with interest ( must go now -only another 50 or 100 more postings to look at )

 

Cheers Paul

[Mistermind]

"Is it legal to charge interest on a service fee?"

 

It is a commercial service, not a Social Service. Debit interest is only charged if a service fee is not paid for. If a solicitor charges for his service at £190 per hour, and a barrister charges for his service at £3,000 per day, and if these fees are not paid within the time period agreed by contract, would it be illegal to charge interest due to late payment?

 

I understand Lloyds T&C completely disallows overdrafts on 3 types of accounts. Here I suggest no lender-borrower relationship exists, no lending service, no bad debt risk, no manual intervention, hence no justification for a service fee.