The bank charges verdict is more mixed than the media has led us to believe. Read about it here.
Today a High Court judge ruled in favour of consumers in the Office of Fair Trading's (OFT's) claim against the banks' penalty charges. I'm sure many claimants are breathing a sigh of relief, but it's still too early to get excited.
Firstly, the judge hasn't ruled on bank charges
Unfortunately, the judge hasn't ruled on whether or not the charges are unlawful. Indeed, that's not what the OFT asked the judge to do! Instead, the judge has simply ruled that the OFT is allowed to assess the charges for fairness under the Unfair Terms in Consumer Contracts Regulations 1999 (UTCCR).
This means the OFT can decide what to do about bank charges. As it has yet to complete its investigation, we can't know what it'll do, or even for sure whose side it'll come down on!
Secondly, the ruling was far from straightforward
Despite joyous headlines in the news, it's not a 'major victory' for the consumer. Having just read all 119 pages of the judgment (my brain has melted), it wasn't all win-win.
The OFT also had the judge consider whether banks' terms and conditions regarding bank charges were in plain English and whether bank charges were penalties at common law (which is different law to the UTCCR).
The judge found that, apart from a few minor terms, the contracts were in plain English (believe it or not). This is because the 'average' consumer is deemed to be 'reasonably well informed and reasonably observant and circumspect'.
The judge also found that the charges weren't penalties under 'common law'. Don't panic about that. It doesn't mean that the charges aren't excessive or otherwise unlawful under the UTCCR, which has always been the strongest argument and is separate to common law.
Remember that the OFT's legal team will have approached bank charges from many angles, possibly not expecting to win all of them. That's normal, just as the banks will use as many possible defences as they can. It was the ruling on fairness that the OFT mostly wanted, and that's the one it got. So don't be too disheartened about some losses; they are to be expected.
The banks' and the OFT's legal teams will be poring over the judgment looking for anything they can to assist them in the next stage. (I also expect a fresh press release one day soon from the banks' mouthpiece, the British Bankers' Association, declaring a 'victory' for the banks!*)
Thirdly, it'll go to Appeal
It's likely that the banks will appeal the decision. There's even a tiny chance that the OFT will appeal against the two areas it lost, although these are less important.
If the banks appeal, it means that a final decision will likely be dragged out for at least another year.
Fourthly, the waiver is still in place
In July last year, the Financial Services Authority (FSA) gave permission to the banks (in a 'waiver') to refuse to deal with any complaints about bank charges until the OFT's claim is concluded.
Furthermore, the FSA told its sub-department, the Financial Ombudsman Service (FOS) to stop handling complaints about penalty charges.
The FSA has today told me that, should the banks appeal the judge's decision, it will keep the waiver in place. It is due to review the waiver this July, but it's clear to me that it will renew the waiver until this matter is settled once and for all.
You can read more about the FSA's shockingly bad idea of a waiver in What's Happening With Bank Charges?
Finally, County Courts might still not allow claims
We're not entirely reliant on the Financial Ombudsman Service to make claims against banks though. An alternative is to challenge them in the County Courts. Thousands of people have done so over the past two years, and they've won millions in reclaimed penalty charges.
However, when the FSA introduced the waiver, it gave the County Courts the excuse they needed to 'stay' (put on hold) all but the most urgent of bank-charges cases until this 'super-claim' is resolved. Indeed, the FSA encouraged them to put all the small claims on hold. (Although I can't see what it has to do with the FSA!)
Each court is allowed to make its own decision about staying claims. It may be that some courts will allow claims to continue now, or that they'll consider allowing more cases from people in serious debt. This means that more people might begin getting their money back again.
Or it may be that most or all courts will continue to stay the majority of claims. What's the bottom line? People whose debt problems have largely been caused by unlawful charges will continue to have no recourse under the law to get their money back.
What happens when it's all over?
So those are the five reasons why we can't yet be jubilant, but what happens when the case is finally over?
Put another way, if it doesn't go to Appeal, or if the OFT eventually wins again on Appeal (as we believe it will) what'll happen next?
It'll then be up to the OFT -- and consumers -- to sort it out.
The OFT could handle a final victory in all sorts of ways. Remember, so far, all the OFT has done is to ask the court for confirmation that the OFT itself can assess the charges for fairness under consumer law. So the OFT will then need to assess the charges and make a decision.
There's a remote possibility that it'll conclude that the charges are fair, in which case customers who haven't already claimed their money back will find it very difficult or impossible.
Claims for compensation are, in this situation, likely to be rejected by the Financial Ombudsman Service (although the FOS is not, like the OFT, restricted to assessing the claim merely on the Unfair Terms in Consumer Contracts Regulations). And banks will fight harder and with greater ammunition if customers decide still to pursue a small claim in the County Court.
If the OFT decides the charges aren't fair, it might try to get the banks to pay back all previous charges. But I doubt the OFT will do this, because it would be a costly administrative nightmare for the banks to look into everyone's accounts and refund them. It's also quite possibly not in the OFT's remit to ask the banks to do this.
So what it's most likely to do is force banks to cap future charges, much like it did with credit-card charges. (Read Banks Back Down On Rip-Off Fines!)
This means that those with existing charges will have to write to the banks individually for refunds. However, refunds should be more swiftly forthcoming than in the past.
If, following the OFT's decision, the banks still refuse to pay up (which would be quite difficult for them), we could take them to the FOS or to court, just as thousands have done for the past two years.
But, believe it or not, if the OFT rules against the banks this could end up back in court once again. If the banks don't like what the OFT says, they could take it back to court to get the courts to decide whether the charges are fair! This could take another few years.
My biggest concern (OK, second biggest, after my concern about the size and expertise of the banks' silver-tongued legal teams) is the passage of time. You can only claim in court for the past six years. (Although you're not so limited with the FOS.) The longer this case is dragged out then the less money you might be able to reclaim.
Although the FOS should help us in that event, you should consider lodging your claim in court to lock in your six years now, just in case. This is even though the court probably won't yet hear your claim. Read my full guidance on that in What's Happening With Bank Charges?
*That release came out minutes after this article was published.
> More: Banks Back Down On Rip-Off Fines! | What's Happening With Bank Charges?
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