There has been a defence against the counterstrike!...We're not talking about first-person shooter computer games, we're talking about the latest story in the super-claim against bank charges. Read about the main allegations here.
Recent activity in the bank charges saga sounds a bit like guerilla warfare.
First, The Office of Fair Trading (OFT) launched a claim against eight banking groups (ten banks in total) about their charges. (Read What's Happening With Bank Charges? for the background.) The banks responded with a defence and a counterclaim. Now, the OFT has fought back with a defence to the counterclaim. It may sound like guerilla warfare, but actually it's a huge battle over billions of pounds-worth of charges.
This huge case is really just a much bigger version of the small claims that individuals have been taking to court. The OFT has its reputation at stake, and it is a powerful organisation -- when it chooses to wield its powers fully. The banks are rich and are using vast sums in their defence. For these reasons, this case won't be straightforward, regardless of the truth of bank charges.
I haven't read the claim or the counterclaim. In my view, there's little point reviewing every document involved, as ultimately it's down to what the judge thinks. However, having read through the OFT's reply and defence to the counterclaim, I believe I have sufficient information to summarise its main points. The OFT is arguing that:
- Either the charges are a penalty for breach of contract or they are charges for a service. (The OFT is allowed to argue both possibilities.) In either case, the OFT will argue the size of the charges are too high under the consumer laws that regard standard, pre-written contracts.
- Some of the terms in current-account contracts are not in plain English.
- Some of the terms do not provide the customer with a fair opportunity to understand them.
- Some of the terms mislead customers.
- There are no terms in the current-account contracts that explain the order in which banks process transactions. (Usually, if, on the same day, a payment is due to leave your account and some money is due to be credited to it, banks make the payment before adding the credit. This can temporarily push people over their overdraft limit.)
- The terms don't make it clear enough that anyone paying for goods when they don't have the money risks committing a criminal offence. (It's not in the banks' best interests to make this clear; the more comfortable people are with exceeding their overdraft limits, the more profit the banks make.)
I also gather from the document that the OFT is still investigating how much it costs banks when someone exceeds their overdraft limit, bounces a cheque, or similar. To attempt to establish this, the OFT will need information from the banks, so, hopefully, they won't be able to stall for too long, as the first hearing is pencilled in to take place some time in January.
Don't miss a trick!
The OFT also points out that many banks have tidied up their terms and conditions in the past few months. The new wording better supports the banks' arguments, but the OFT correctly claims that the language may be different, but the charges have not materially changed.
So they haven't missed this trick, but we can expect a lot more from the banks. Let's hope the OFT's legal team is up to scratch.
Nationwide
Nationwide is one of the ten banks (OK, banks and building societies then!) that is being taken to court in this super claim. (The others are Abbey, Barclays, Clydesdale, Halifax, Bank of Scotland, HSBC, Lloyds, Royal Bank of Scotland and NatWest.)
The many Fools who are Nationwide fans will be pleased to know that, whilst the OFT believes the building society is mostly 'guilty' of the same things as the other banks, in some areas the OFT's defence to the counterclaim specifically says that Nationwide is not guilty, particularly when it comes to how clearly the terms and conditions are expressed in its current-account contracts.
Who should pay for banking?
Many banks tinkered with their charges recently. It appears that the banks are arguing that the changes will actually make it cheaper for many. However, they acknowledge that it'll be more expensive for others. So, what we've got here is even greater punishment for the people who can least afford it.
Furthermore, however they change their T&Cs, they're still unlawfully punishing the poorest people to fund free banking for those who are more affluent. I don't want to pay for my current account any more than other Fools, but I'd much rather we all get charged a modest fee than the poorest people are forced to pay thousands each in illegal penalties just to support us. Ethically and legally it is not right...There, I said it!