Could Bank Charge Claims Be Back?
You may recall some years ago there were claims being made against banks regarding unfair bank charges. These charges were for things like going into an unauthorised overdraft and other such things.
Banks were paying out compensation to customers by the bucket-load, almost £600m at the time, and rightfully so in our opinion. It was estimated that refunding customers could eventually cost the banks up to £20 BILLION, almost as much as PPI, but that all came to a sorry end in 2009.
Supreme Court defeat for the Office of Fair Trading
The banks and the Office of Fair Trading were at loggerheads for a while over the issue, with the banks believing they shouldn’t be compensating customers for the extortionate fees they were charging, and the OFT believing they should.
In July 2007 the two sides agreed that claims for compensation should be placed on hold whilst a ‘test case’ was put to the Supreme Court. Both sides were confident of victory, and it’s our opinion that the OFT didn’t quite put the resources to the case that they should, possibly believing victory would be a formality.
It came as quite a shock when the ruling found in favour of the banks, and it appeared that compensation regarding bank charges was a thing of the past.
The reason the banks won
The OFT based their case on the fact that the charges themselves were unfair, and this was probably their downfall. The Judge deemed that is was not unfair for the banks to charge a customer for unauthorised borrowing (going overdrawn), as there is clearly a cost to the banks for this ‘service’.
It was clear to us though that the Judge felt his hands were tied when making the decision, and that his personal opinion was that the banks were wrong, even though in law they could be seen as right.
The Judge even advised the OFT to go away and rethink their approach, and stressed that this was not the end of the matter.
How the banks changed
Despite the victory in court, the banks were under no illusion that the OFT and the Government would continue in their pursuit to put things right for consumers, so they decided to try and meet halfway by reducing their overdraft fees and charges a little.
This seemed to work as we’ve heard very little since. However, unauthorised overdraft charges and rates are generally higher than that of a payday loan, something the banks like to try and keep on the hush!
This left the banks with a small problem though. They were fully aware that by reducing their charges for overdrafts they would have a shortfall that they would have to find elsewhere.
The rise of the Packaged Bank Account
How could the banks make up the shortfall? Simple, charge people for using bank accounts by putting together new Packaged Bank Accounts. It appears it didn’t really matter whether they sold these fairly, and there are an estimated 10 MILLION of these packaged bank accounts currently active today.
Because the banks mis-sold Packaged Bank Accounts, this is fast becoming the next big mis-selling scandal, following hot on the heels of PPI.
A new victory for the consumer against bank charges
Back to bank charges now….and whilst it’s been assumed for some time now that claiming for unfair bank charges was generally a waste of time, there appears to be some light at the end of the tunnel.
The OFT lost it’s case against the banks by basing their argument that the charges themselves were unfair.
However, a recent court case has shed a whole new dimension to the argument, and for once we have Europe to thank as the case took into account rulings made by the European Court of Justice (ECJ) when it ruled on a case known as Hatosag -v- Invitel in 2012.
Hatosag won the case based on unfair terms within the contract between the two parties, and Invitel was ordered to repay the charges it had made. Basically, Invitel had inserted into it’s contract that it reserved the right to charge fees and amend fees.
The European Court of Justice ruling
So…how was the Hatosag -v- Invitel ruling relevant to the case for bank charges, and how might it change things moving forward?
Well, the ECJ ruled that, although it didn’t have any issue in the charging of fees, or even the amount of fees so long as these are clearly explained, it did have an issue with the fact that Invitel reserved the right to amend it’s fees within it’s contract without offering Hatosag the option to terminate the contract.
The ECJ ruled that the term inserted by Invitel violated Regulation 5 of the Unfair Terms in Consumer Contract Regulations 1999 (UTCCR), which states that:
‘(1) A contractual term which has not been individually negotiated shall be regarded as unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties’ rights and obligations arising under the contract to the detriment of the cosumer’
So basically because the term inserted by Invitel offered no right to Hatosag to terminate the contract in the event it decided to change it’s charges, Hatosag was effectively stuck in a contract where Invitel could raise it’s charges at any point without any negotiation.
Oliver Foster-Burnell -v- Lloyds TSB
Following on from Hatosag -v- Invitel, the ruling by the ECJ offered an alternative avenue to consumers fighting for bank charges, by basing their argument that the terms themselves are unfair.
Oliver Foster-Burnell (OFB) and his legal team took Lloyds TSB to court over unfair bank charges, and with the assistance of the ruling made by the ECJ, beat them!
Lloyds had inserted terms into the current account contract which stated they could change interest rates, charges and charging dates, or introduce new charges. They also stated within their contract that they were able to make any change to the terms of the agreement. What they failed to do was offer OFB the right to terminate the contract as and when Lloyds changed the terms, which much like Hatosag -v- Invitel, was deemed to be unfair.
So, OFB was not given the option to negotiate the charges, or terminate the agreement if he didn’t agree with the charges. This effectively allowed Lloyds TSB to increase their charges at will, effectively trapping OFB into a contract which was to his detriment.
Mr Oliver Foster-Burnell and his solicitors may have just set a precedent, although at this moment in time you can be sure that Lloyds TSB are currently spending a lot of money to see if they are able to appeal and overturn the decision.
Your Money Claim View
Whilst this is certainly a significant ruling we are certain that Lloyds will look to fight back over the next few months and launch an appeal.
It was generally accepted back in 2009 that the Office of Fair Trading had approached the case in the wrong manner, and it appears the European Court of Justice may just have opened the door, even if only slightly, to millions of customers who’ve been trapped into being charged extortionate fees by sometimes going a matter of a few pennies overdrawn.
We cannot underestimate the impact bank charges has had on such a significant proportion of the population, with close to half of us receiving these charges at some point or another. The spiral of debt that such charges has put so many people into, and the stress it has caused, should cause the banks no end of shame, but we know what banks are like by now don’t we.
We’ll be keeping a close eye on event over the next few months, but if you want to discuss your situation, if you want any advice, or if you’d like to make a claim our experts are on hand so why not contact us via telephone, email or via our live chat facility.