Bank charges: The banks have won!

Find out what the latest ruling in the bank charges battle means for you.

The Supreme Court (which till recently was the law court of the House of Lords) has overturned previous rulings on bank charges. This should have no effect on previous claimants, but it's a major setback for those waiting to claim.

The judges were only ruling on a technical point: whether the Office of Fair Trading (OFT) is allowed to assess the charges for fairness under regulation six of the Unfair Terms in Consumer Contracts Regulations.

As the judges wrote in their judgment (another mind-melting 46 pages, so forgive me if I cnat' tpye whlie my bairn szziels):

"It is...appropriate to spell out at the outset that the Court does not have the task of deciding whether the system of charging personal current account customers adopted by United Kingdom banks is fair."

The court hasn't decided whether it is fair that the 12 million who face many charges are subsidising the (on average) much wealthier 42 million other banking customers. The judgment went further:

"Some would regard the United Kingdom system as being, in some sense at least, obviously unfair...That is an imponderable question which depends partly on whether one's perception of the average customer who incurs unauthorised overdraft charges is that he is spendthrift and improvident, or that she is disadvantaged and finding it hard to make ends meet. But it is not the question for the Court."

It's the cost of a service

The judges went further by saying that the price paid is for the cost of a service, putting an end to the long-running idea that these are penalties under law. This is a massive point.

There is no doubt that this is a double-sledgehammer blow for claimants, but it won't be the last we'll hear of it.

With two of the courts ruling on the claimants' side in earlier rounds, it begun to look, to many claimants, like the banks were just a David clutching at pebbles against the Goliath of consumer pressure. Now it is the customers who have taken the role of David, but they will still feel a fight in them. Indeed, consumer group Which? has already signalled it strongly intends to continue its supporting role, and I know that the Consumer Action Group, with its huge member base, will be looking for new routes to a satisfactory conclusion. The banks fought on through their hard times, so we can expect claimants to do the same too.

Claimants do have some areas where they can put up a decent fight. The judges went beyond their remit, as they often do, to give guidance to Parliament and the OFT:

You're looking at the wrong section

To the OFT, the Supreme Court hinted that it might want to look at a different section of the law. Instead of regulation six, it should look to regulation five. By not allowing the customers to have a say in whether the bank should accept transactions that take them beyond their unauthorised overdraft limit, for example, the banks could be said to be in breach of this regulation.

More protection needed

There were also half a dozen strong hints throughout that the Court believes that new legislation is necessary to support customers. The judgment states, to take one example, that Parliament "might wish to consider" revising the law to make the protections level with some other EU states.

Perhaps this whole thing will inspire changes in the law and that will mean it'll all have been worth it for the millions of (on average) much poorer and indebted people who subsidise the banking of wealthier people.

One of the judges, however, suggested such legislation would be difficult and instead said that the problem might be a lack of competition between the banks in the products they offered.

The Office of Fair Tradings response

The OFT said today it is disappointed for customers and looking at whether to pursue its investigation, and that it will explore existing and future legislation. It will review the judgment in full and update us in December.

Considering what is fair

The Financial Ombudsman Service's (FOS) view is not yet known. The FOS is not tied to law alone, but can make individual rulings based on all the facts of the individual case and considering what is fair. There's a possibility it will still rule on some claimants' side. As it said today:

"The law is one of the things (emphasis added) that the ombudsman has to take into account when we decide cases." The FOS, like the OFT, is reviewing the judgment more thoroughly before commenting further.

More doubts from the banks, or just soothing propaganda?

The British Bankers' Association (the banks' PR - or propaganda - machine) today said that it'll still be working with the OFT in regards its investigation into whether charges are fair. Either this is to make it seem benevolent and caring (which, as we all know, banks are in spades) or it's because it believes it will, in the end, have to reduce charges. That would at least be a partial victory for claimants.

Should we ever have claimed?

Many will be asking now "Was it right to reclaim in the first place and that earlier claimants are keeping their money?" It will be no surprise to many of you what I think. I was the first financial journalist to start campaigning on this issue, years ago. (I'm not the only one to say that, but it's true.) I trusted my legal background and my mother, a lawyer.

Personally, I think claimants were within their legal rights to make claims and it's good for those hundreds of thousands who managed to do so. To those of you who are against claiming I say this: if you believe that people shouldn't try to get the best for themselves financially then you shouldn't shop around for the best deals, because that means that other poor sods will end up with worse deals.

Furthermore, wealthier people also shouldn't try to reduce their tax bills, for example, because this means poorer people must pay more to compensate. Of course, this will never happen. We will all, always, try to maximise our own finances. Indeed, that's the only way the system can possibly work, humans being what they are.

So long as people maximise their finances in a legitimate way (i.e. by legally reducing our tax bill or by taking up our rights to get the opinion of a judge) then I won't complain. That's why we, at lovemoney.com, will continue to give advice to all on how they can optimise their finances. Just as we'll let wealthier people know if there's a way to reduce their taxes, we'll be letting hopeful claimants know if we find another route around bank charges. Once my brain recovers from reading the judgment, that is.

Last words of hope from the judgment

"...this will not close the door on the OFT's investigations and may well not resolve the myriad cases that are currently stayed in which customers have challenged Relevant Charges."

Tell us what you think

Join the debate on our Q&A tool about this topic: What do you think of the bank charges verdict?

And have a read of Ed Bowsher's blog - he thinks the decision is an opportunity for new banks. And remember if you need a bit of help with banking, we can help. First, adopt this goal: Pay off credit card debts. Next, watch this video: How to save when you've got no money. And finally, why not have a wander over to Q&A and ask other lovemoney.com members for hints and tips about what worked best for them?

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