Dark day for consumers as OFT drops challenge to unfair charges

THE OFFICE OF FAIR TRADING (OFT) has announced that it is dropping its legal challenge to the fairness of overdraft charges. GLC's Mike Dailly, Principal Solicitor said:

“This is truly a dark day for millions of consumers across the UK. The news that the OFT has dropped it legal challenge to unfair bank charges is quite possibly the worst Christmas gift any statutory regulator could give to hard working families struggling to make ends meet and hoping to get a refund of excessive overdraft charges at some stage".

"Before the OFT raised its unsuccesful test case individual consumers were able to obtain £1 billion pounds in refunds. Since the OFT stepped in, all refunds have been on hold for two and half years. As the OFT has dumped its challenge, the banks will move to strike out 50,000 court cases across the UK; the Financial Ombudsman may move to reject 15,000 complaints, while the banks will move to reject the one million or so customer complaints it has placed on hold over unfair charges. Quite literally it's a consumer disaster".

"We believe the OFT was legally and morally obliged to continue with its challenge. Legally because the Supreme Court advised the OFT in its judgment that the door to challenging the fairness of charges remained open under regulation 5 of the UTCCR (Unfair Terms in Consumer Contract Regulations 1999), and separately because new grounds of challenge under the Consumer Credit Act became available from 2007 onwards. Morally, because consumers were doing very well in obtaining their own refunds before the OFT stepped in, and it's wrong to leave them high and dry now".

"Once you assume the role of the UK's leading consumer champion, you can't have a faint heart. You can't desert the public when the going gets tough, you've got to see things through to the end. If consumers are to be thrown overboard without any life jacket by the OFT, then at least the UK Government's current Financial Services Bill contains provisions for 'class' or 'multi-party' actions. It won't be easy, but it may be possible for consumers to use these new provisions to take on the banks directly".

"In Scotland, there is nothing to stop the Scottish Government fast tracking the introduction of a system for multi-party actions, as recommended by the Scottish Civil Courts Review. At present Scotland does not even have the 'Group Litigation Order' rules available in England since 2000, and unless consumers can come together to pull their resources it will be exceptionally difficult to obtain consumer justice against the banks".

"In Scotland, Govan Law Centre has already started to amend claims to take on board the Supreme Court's decision, and new Consumer Credit Act remedies, and is currently awaiting court dates. The campaign goes on, and we'll be issuing some information on the new legal arguments as soon as possible".

Listen to Mike's discussion on this subject on Radio 4's Today Programme.

OFT to announce whether it will continue bank charges fight

Exchequer Secretary to the Treasury Sarah McCarthy-Fry said this week that the OFT will reveal its decision on whether it will continue its challenge to unfair bank charges, next week, on Tuesday 22 December 2009. See the story on MSE for further details.

Bank charges update: 'where are we now?'

GLC had instructed a senior team of London barristers with expertise in UK banking law on behalf of Martin Lewis of MoneySavingExpert.com (MSE) with a view to identifying stateable legal routes forward, following the Supreme Court's ruling last month. That initial work is complete. There are two possible ways forward.

First, as the Supreme Court itself noted, it remains open to the OFT (and indeed individual consumers) to challenge the legal fairness of bank charges under regulation 5(1) of the Unfair Terms in Consumer Contract Regulations 1999 (UTCCR). Secondly, some consumers may be able to found upon sections 140A and 140B of the Consumer Credit Act 1974 and argue that the terms of contract which permit their bank to levy charges are an 'unfair relationship'due to excessive cost, among other arguments. The onus of proof under s.140B of the CCA is upon the banks to prove otherwise.

A good summary of these arguments has been posted on MSE here.

No amended template documents have been produced at this stage, because it has become apparent that the best solution in the public interest, is for the OFT to raise fresh proceedings against the banks and take further enforcement action. Why?

There are various reasons, including (a) an estimated 12 million UK consumers have paid bank charges in the past and it is unrealistic, unreasonable and impractical to expect all of them to be able to take personal action to reclaim these charges, (b) if the OFT does not take action, there will be widespread scope for claims management companies and 'claims farmers' who operate in a parasitical, viral way, to make a lot of money (e.g. a 40% take of your award, with upfront costs on top)by exploiting vulnerable members of the public.

And finally,(c)the skill and arguments necessary to present claims in adversarial court proceedings is likely to be beyond most party litigants (we saw this in the Hull strike-out cases, where GLC as part of the UK unfair bank charges legal team had to undertake a huge amount of amendment work, with Mr Raymond Cox QC appearing on our clients behalf, in order to stop 44 cases being struck out - we won, but it was a massive amount of work).

If the OFT did decide to take up the new legal challenge(s), and subsequently won, then consumers would be able to seek a refund without the need to pay anyone at all. Furthermore, if the OFT continued its legal challenge this should prevent one million current claims being rejected. If the OFT ultimately, decide not to take this issue forward then we will need to carefully consider our strategy. The OFT are expected to make a decision in the next few days - so watch this space.

Meantime, in Scotland, GLC has enrolled applications to recall sists (stays) in bank charges cases with a view to obtaining compensation for some of our clients in the South West of Glasgow. This is a completely free service, as we are charitable, community law centre. At this stage, we cannot offer this service to non-existing clients or clients outwith the South of Glasgow given resource implications, and the fact a large proportion of our resources are currently dedicated to preventing homelessness, defending eviction and repossession cases across Scotland.

However, we will report on any progress that we can make, with a view to helping consumers strategically in Scotland and in the UK generally.

Complaints upheld by FOS doubles in two years

The Herald reports that the proportion of complaints upheld in favour of consumers by the UK Financial Ombudsman Service (FOS) has doubled in the past two years.

FOS upheld 61% of banking-related complaints, 41% of mortgage complaints, 70% of general insurance complaints and 42% of investment-related complaints. Five banking groups accounted for 38,286 cases – over half of all the new complaints received by the ombudsman during this six-month period.

The British Bankers Association (BBA) response to this data was to immediately claim this was a great success as this translated to "less than one upheld complaint for every 10,000 products you can get from your bank".

Of course this may provide little comfort to the 38,286 bank customers who complained to the FOS in the last six months; and if FOS is upholding 61% of these complaints, this is compelling evidence that the banks' complaint handling systems are wholly inadequate and in need of reform.

Clearly, the FOS is providing a practical remedy to UK consumers with financial disputes, and if you want information on how to complain to the FOS please visit here. Although, for a critical 'insiders' take on problems with the FOS see here.

Law Society response on trainee exploitation debate

Last month the Firm published GLC's Principal Solicitor's contribution to the Scotsman debate on the subject of trainee exploitation, which challenged the Law Society's stance on key issues. Nick Taylor of the Law Society's Admissions Committee responds to Mike's points on The Firm online, with reference to the proposed changes to qualifying as a solicitor in Scotland, from September 2011.

Rebel Lawyer: Herald business profile

Simon Bain's profile of GLC's Principal Solicitor in The Herald's Saturday Business Section: 'Mike Dailly is not your typical successful lawyer. He speaks his mind, exudes enthusiasm, earns a very modest salary, and annoys bankers, bureaucrats and politicians'. The full article from The Herald is online here.