OFT Test Case

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OFT launches test case on unauthorised overdraft charges

106/07 26 July 2007

The OFT will tomorrow commence proceedings in the High Court for a declaration on the application of the law in respect of unauthorised overdraft charges.

Tens of thousands of complaints that these charges are unfair have been received by the County Courts and the Financial Ombudsman Service. The banks do not accept that the unfairness rules of the Unfair Terms in Consumer Contract Regulations apply. The OFT believes that they do and is seeking to establish this legal principle clearly in the court. The OFT considers that a quick determination of this point of principle will assist in securing a clear and orderly resolution of the fairness of these charges.

The test case complements the ongoing market study into personal current accounts, which addresses wider questions about competition and price transparency in the provision of personal current accounts.

The OFT will continue to work closely with the Financial Ombudsman Service and the Financial Services Authority, in addition to consulting with banks and consumer groups.

NOTES

1. In March 2007 the OFT announced a formal investigation into the fairness of unauthorised overdraft and returned item fees (referred to as 'unauthorised overdraft charges'). This followed on from the OFT's initial review of such charges, where the OFT concluded that it shared the public concern about the level and incidence of bank current account charges, but recognised that applying the general principles set out in 2006 in relation to credit card charges is not straight forward.

2. The other parties to the test case are Abbey National plc, Barclays Bank plc, Clydesdale Bank plc, HBOS plc, HSBC Bank plc, Lloyds TSB Bank plc, Royal Bank of Scotland Group plc, and Nationwide Building Society. Together these current account providers account for about 90% of personal current accounts in the UK. The OFT has entered into an agreement with these current account providers in relation to the litigation process to facilitate an orderly and timely resolution of the legal issues.

3. The OFT continues its UTCCRs investigation into whether the level of charges is fair and will publish its findings and proposed action by the end of the year, as announced in March 2007.

4. If, in the light of the UTCCRs investigation, the OFT decides to take action because it finds the charges to be unfair but is not able to secure voluntary compliance, it will proceed to a second stage court case applying for a ruling that the charges are unfair.

5. In the course of its work on the issue the OFT has liaised closely with the Financial Services Authority and Financial Ombudsman Service and has also held discussions with the main banks. The FSA is announcing today that it is issuing a waiver from its complaints handling rules that apply to unauthorised overdraft charges, following the OFT's decision to initiate a test case.

6. The OFT's market study is taking a holistic look at whether the personal current account market is working well for consumers. In particular it will assess the extent to which consumers help drive competition. The market study is currently in its evidence gathering phase, and the OFT will publish its findings by the end of the year.


OFT Questions and Answers

1. What work is the OFT doing relating to current accounts?

There is widespread concern about whether current accounts provide value for the UK consumer, and in particular whether unauthorised overdraft charges and returned item fees are fair.

The best way to get a good outcome for consumers is to ensure that consumers understand what they are paying and can vote with their feet and move to banks that offer better value for money.

To achieve this outcome, we launched an investigation into the fairness of personal current account unauthorised overdraft charges and returned item fees under the Unfair Terms in Consumer Contracts Regulations 1999 ('UTCCRs').

In parallel we also launched a market study in April to consider the wider questions about competition and value for money in the provision of personal current accounts, such as:

  • Transparency of costs to consumers
  • Ease of switching
  • Fairness of pricing structure

2. Where does the test case fit in?

One aspect of our work is considering whether unauthorised charges and returned item fees meet the fairness requirements of the UTCCRs. We believe that the test of unfairness under reg 5 of the UTCCRs applies to such charges, but the banks dispute this. We are filing papers today to have this point of law clarified. We believe we have a strong case. In the meantime, we are collecting financial information from the banks to allow us to assess whether the levels of these charges are indeed fair.

If, in the light of this information, the OFT decides that it is appropriate to take enforcement action because it finds the charges to be unfair but is not able to secure voluntary compliance, it will expand the court case to include a claim for a ruling that the charges are unfair.

3. Why is the OFT launching a test case?

Tens of thousands of complaints that unauthorised overdraft charges and returned item fees on current accounts are unfair have been received by the county courts and the Financial Ombudsman Service. The banks do not accept that the legal test of unfairness set out in unfair contract terms legislation applies to the charges.

The OFT believes that it does and is seeking to establish this legal principle clearly in the court.

The OFT considers that a quick determination of this point of principle will assist in securing a clear and orderly resolution of the fairness of these charges.

4. What will the test case cover?

In assessing whether the charges are consistent with the UTCCRs:

The first step is to assess whether the charges are subject to the test of unfairness,

The second step is then to consider whether the amount of the charges is unfair.

The OFT's legal action addresses the first point by seeking to establish that the provisions of the UTCCRs that deal with unfairness apply to unauthorised overdraft charges.

The legal action will encompass a representative selection of the banks current and previous terms and conditions.

This first stage of legal action is also expected to cover some additional points of legal principle: in particular whether these charges can be a penalty at common law.

5. How is the test case structured?

OFT has entered into a written agreement with seven banks, one building society and the Financial Services Authority aimed at ensuring that this inevitably complex process is orderly and well coordinated.

In particular, while recognising that the management and timing of litigation are ultimately matters for the court to decide, the agreement includes the following commitments:

The banks have undertaken to co-operate with the OFT in its conduct of the UTCCRs investigation and expeditiously to provide documents and information sought by the OFT in so far as practicable.

If, in the light of the investigation, the OFT decides that the charges are unfair and, as a result, requires the Banks to do anything which they are not prepared to undertake to do in connection with the charges, then the OFT may amend its court documents so as to include a claim for a court ruling that the charges are unfair and for appropriate relief against the banks, such as a declaration or an undertaking to the Court or a final injunction or enforcement order.

All the Parties are committed to progressing the court proceedings speedily and have agreed to seek a trial as soon as reasonably practicable. A timetable for the exchange of court documents has been agreed to help achieve this.

The parties have agreed that each party is to pay its own costs of the court action. Download the full text of the agreement (pdf 52 kb).

6. What is the benefit of OFT starting now with a test case on legal principles rather than waiting until it is ready to take enforcement action?

It should reduce the time taken to reach an outcome.

If the OFT waited until it could take enforcement action, it is quite likely that the court would then want to take the legal principle we are pursuing now as a preliminary issue: pursuing it now saves time.

The agreement between OFT and banks commits all parties to seek a resolution of the issues, and in particular a trial, as soon as is reasonably practicable and to seek to have any appeals heard on an expedited basis.

If the OFT takes the lead in taking action now to clarify the law, this should help achieve an orderly and expeditious resolution of all of the relevant issues.

7. How does this affect consumers in Northern Ireland and Scotland?

The unfair contract terms regulations apply across the UK and the outcome of the test case will be important for consumers right across the UK. On individual claims, other aspects of court cases may be different in Scotland.

8. Which banks are taking part in the test case?

The following are parties to the agreement with OFT for the test case:

  • Abbey National plc
  • Barclays Bank plc
  • Clydesdale Bank plc
  • HBOS plc
  • HSBC Bank plc
  • Lloyds TSB Bank plc
  • Nationwide Building Society
  • Royal Bank of Scotland Group plc

This selection of banks covers the bulk of the PCA market (estimated to be over 90 per cent) and their terms and conditions are representative of agreements used currently in the retail banking market and of previous agreements of the kind which are in dispute in County Court claims.

9. What are the roles of OFT, Financial Services Authority and Financial Ombudsman Service in all of this?

OFT's responsibility is to make markets work well for consumers. This includes enforcement of the UTCCRs, where appropriate. However the OFT does not have the power to intervene in individual disputes between consumers and businesses.

Financial Ombudsman Service has responsibility for dealing with individual complaints by customers.

Financial Services Authority deals particularly with how banks handle complaints, both assessing past performance and (as in the case of the present waiver) in giving directions going forward.

The Financial Services Authority, like OFT, does not handle individual complaints but it does have an interest in ensuring that complaints for past actions are satisfactorily dealt with. The FSA is a qualifying body under the UTCCRs.

10. How will you ensure joined up working with the Financial Services Authority and Financial Ombudsman Service?

We have a formal working agreement. The Wider Implications Process (WIP) is an arrangement under which complaints to the Financial Ombudsman's Service are identified as having wider implications that need to be dealt with by the FSA, OFT, or possibly both. This action represents the first use of the WIP involving the OFT.

11. What happens to those wanting to, or in the process of reclaiming charges while the case is going on?

It will be for the courts to decide in relation to claims made to them.

The Financial Services Authority has issued a 'waiver' from its complaints handling rules. This action means that until the test case is resolved any bank or building society that applies for the waiver will not be required to handle complaints relating to unauthorised overdraft charges.

The UTCCRs law is one factor that the Financial Ombudsman Service must take account of when making its decisions. As this action is expected to provide certainty about the law, the Financial Ombudsman Service has decided not to progress complaints about current account charges until the outcome of the legal action is known.

12. When is OFT going to bring any enforcement action into the process?

We hope to have come to a view on fairness by about the end of the year.

We would then take appropriate steps to enforce our view, including enforcement action if the banks do not voluntarily co-operate.


The Agreement between The OFT and the Banks

This Agreement is made on 25 July 2007

BETWEEN

(1) The Office of Fair Trading of Fleetbank House, 2-6 Salisbury Square, London EC4Y 8JX (the OFT);

AND

(2) Abbey National plc of Abbey National House, 2 Triton Square, Regent’s Place, London NW1 3AN;

(3) Barclays Bank plc of 1 Churchill Place, London E14 5HP;

(4) Clydesdale Bank plc of 30 St Vincent Place, Glasgow G1 2HL;

(5) HBOS plc of the Mound, Edinburgh EH1 1YZ;

(6) HSBC Bank plc of 8 Canada Square, London E14 5HQ;

(7) Lloyds TSB Bank plc of 25 Gresham Street, London EC2V 7HN;

(8) Nationwide Building Society of Nationwide House, Pipers Way, Swindon SN38 1NW

(together, the Banks)

(each a Party and together, the Parties)

AND

(9) The Financial Services Authority of 25 The North Colonnade, Canary Wharf, London E14 5HS, (the FSA).

WHEREAS

A. The OFT has initiated an investigation under s.224 of the Enterprise Act 2002 (the Investigation) into the fairness or otherwise for the purposes of the Unfair Terms in Consumer Contracts Regulations 1999 (the 1999 Regulations) of certain terms contained in each Bank’s personal current account arrangements providing for charges to be imposed upon customers who seek to make payments for which they do not have available funds (the Relevant Terms and the Relevant Charges).

B. Whilst the Investigation continues, large numbers of individual customers are pursuing claims against the Banks (and other banks) alleging, inter alia, that the Relevant Terms applicable to them are and/or have been unfair within the meaning of the 1999 Regulations and/or the Relevant Charges constitute and/or have constituted unenforceable penalties at common law.

C. The Banks and the OFT believe that, consistently with CPR Part 1 (the overriding objective), the relevant legal issues need to be determined expeditiously and, in light of the complexity and importance of the issues, in a fair and orderly way. The scale of the customer litigation causes increased expense for all litigants as well as the Courts and presents significant administrative problems for the Courts in handling such cases. Further, the risk exists that the issues currently being investigated by the OFT will be brought before the High Court (and/or the Court of Appeal) before the OFT is in a position to adopt a considered position on the fairness of such terms, and in circumstances where the Court will not have all the relevant materials available to it to determine all relevant issues.

D. In the Investigation, the Banks have contended, as a preliminary point, that (1) the Relevant Terms and Relevant Charges fall within Regulation 6(2) of the 1999 Regulations and do not fall to be assessed for fairness,

(2) if the Relevant Terms or Relevant Charges do fall to be assessed for fairness, then the Banks must as a precondition be shown to have contravened the requirement of good faith, and

(3) the Relevant Charges are for services, rather than for breach of contract, and are not capable of amounting to a penalty at common law.

E. Although the OFT would have preferred to issue any proceedings in relation to all relevant issues at the same time, including the Preliminary Issues (as defined in paragraph 1.4 below) and any Substantive Issues (as defined in paragraph 3.1 below), following the conclusion of the Investigation, the Banks and the OFT believe that it is desirable to begin now the process of determining the legal issues. The Banks and the OFT believe that the Preliminary Issues are capable of determination as preliminary issues and that to do so would materially assist with the expeditious and orderly resolution of the issues concerning the Relevant Terms. Both the OFT and Banks seek an outcome to all relevant issues as soon as reasonably practicable.

F. Accordingly, to ensure that matters relating to current and historic and intended Relevant Terms and Relevant Charges are brought before the Courts in accordance with CPR Part 1, in an efficient, expeditious, and orderly way, the OFT and the Banks have agreed that the OFT should commence proceedings against the Banks in the High Court as soon as possible, and notwithstanding the fact that the Investigation is not yet complete, in relation to the Preliminary Issues.

G. The Parties intend that, depending on the outcome of the Investigation and the Court’s determination of the Preliminary Issues, the substantive issues of fairness and penalty will be determined subsequently in these proceedings. The Parties also envisage that other issues flowing from those issues (such as customer restitution and limitation) would come to be determined concurrently with the said substantive issues.


In consideration of the mutual promises contained herein, the Banks, the OFT and the FSA hereby agree as follows:

1. COMMENCEMENT OF PROCEEDINGS

1.1 The OFT will, by 27 July 2007, file and serve a Claim Form under CPR Part 7 in the Commercial Court (the Proceedings) for a declaration that the Relevant Terms and/or Relevant Charges are not excluded from an assessment for fairness under the 1999 Regulations by reason of Regulation 6(2)(a) and/or (b) thereof.

1.2 The Banks will be cited in the OFT’s Claim Form as Defendants to the Proceedings.

1.3 The Banks and the OFT agree that the Proceedings will encompass:

(a) a representative selection of the historic Relevant Terms and Relevant Charges of each Bank of a kind which are in dispute in the county court claims referred to in paragraph B of the recital;

(b) the Relevant Terms applicable to each Bank’s personal current account arrangements currently in force with its customers and/or each Bank’s current Relevant Charges; and

(c) in cases where any such Relevant Terms or Relevant Charges are due to be replaced, the replacement Relevant Terms and/or Relevant Charges.

1.4 The Banks will counterclaim against the OFT for declarations that:

(a) the Relevant Terms and/or Relevant Charges are in plain intelligible language, and

(i) relate to the definition of the main subject matter of the contract, and/or

(ii) provide for payment of remuneration for services supplied by the Banks in exchange, rather than payment of a sum by the customer for breach of a contractual duty owed to the Banks and accordingly, are excluded from assessment for fairness under the 1999 Regulations by reason of regulations 6(2)(a) and/or (b) thereof, and, by reason of (ii) above, are not capable of amounting to a penalty at common law.

(b) Alternatively, if the Relevant Terms and/or Relevant Charges fall to be assessed for fairness under the 1999 Regulations, a declaration that it is a necessary (but not sufficient) precondition to such terms and/or charges being shown to be unfair within the meaning of regulation 5(1) of the 1999 Regulations that they be shown to be contrary to the requirement of good faith, and a declaration as to the true meaning of "good faith" for the purposes of the 1999 Regulations.

The issues set out in sub-paragraphs 1.4(a) and (b) and paragraph 1.1 above are referred to herein as “the Preliminary Issues”.

1.5 The OFT and the Banks hereby agree on the following proposed timetable, which all Parties will invite the Court to endorse:

(a) Each Bank to file and serve an Acknowledgement of Service within 7 days of service of the OFT’s Claim Form;

(b) Each Bank to provide the OFT, by 1 August 2007, with a copy of its personal current account agreements and price lists in relation to the Relevant Terms and Relevant Charges encompassed within the Proceedings pursuant to clause 1.3 above, together with:

(i) in relation to any historic Relevant Terms or Relevant Charges, a statement of the dates on which such Relevant Terms or Charges applied; and

(ii) in relation to any replacement Relevant Terms or Relevant Charges, a statement of the date of such change;

(c) The OFT to serve one composite set of Particulars of Claim relating to the Relevant Terms or Relevant Charges of each Bank by 31 August 2007;

(d) Each Bank (or, if considered appropriate, the Banks together) to serve a Defence and Counterclaim by 28 September 2007;

(e) The OFT to serve a Reply and Defence to Counterclaim by 26 October 2007;

(f) The first Case Management Conference (CMC) to be held on the first available date after service of the Defence and Counterclaim of the Banks; if the Court permits, the date of the CMC will be arranged through the normal channels as soon as the Claim Form has been issued;

(g) Directions to be sought at the first CMC to deal with the following matters (unless dealt with earlier, if the Court should so decide):

(i) extent and/or timing of evidence by way of witness statements or otherwise;

(ii) extent and/or timing of any disclosure;

(iii) listing of trial, including time estimate, with the Parties aiming for a trial as soon as reasonably practicable;

(iv) if appropriate, intervention by any other banks desiring to join the Proceedings;

(v) if unresolved, the stay of other proceedings in the Courts which raise the Preliminary Issues and related issues.

1.6 The OFT recognises the desirability of achieving a fair and orderly resolution of the relevant issues and will not object to any request or application for a stay of other court proceedings between the Banks and their customers concerning the Relevant Terms and/or Relevant Charges.

2. THE OFT INVESTIGATION

2.1 The Investigation will continue unaffected by the commencement of the Proceedings.

2.2 The OFT and the Banks agree to cooperate to ensure that the Investigation is carried out and completed expeditiously.

2.3 The Banks undertake:

(a) not to contend during the course of the Investigation that the Investigation should be suspended and/or not to contest any step therein by reason of the Proceedings being afoot and/or judgment on the Preliminary Issues being awaited; and

(b) to co-operate with the OFT in its conduct of the Investigation and in particular expeditiously to provide documents and information sought by the OFT in so far as practicable and not to contend that such documents or information are only liable to production if the Preliminary Issues are decided in favour of the OFT.

3. AMENDMENTS

3.1 If, at any time, the OFT (i) concludes the Investigation, and (ii) forms a view which is or includes an assessment that the Relevant Terms or Relevant Charges of any Bank are unfair within the meaning of the 1999 Regulations, and (iii) as a result requires the Banks (or any of them) to do anything which they are not prepared to undertake to do in connection with the Relevant Terms and/or Relevant Charges, then:

(a) the OFT may amend its Statements of Case in the action so as to include a claim against the Banks (or any of them) for a declaration and/or an undertaking to the Court (and/or such other relief as the OFT may consider appropriate, including a final injunction or enforcement order) (and the issues raised by those amendments (and any consequential amendments made by the Banks) are hereafter referred to as the Substantive Issues);

(b) the Banks will not oppose such amendment being made whether or not they could have argued that such amendment is late in the day, or seeks to introduce a claim that was not in existence at the time the original claim form was issued, or that one or more of them have an appeal pending in relation to the Preliminary Issues, or is in any other way inconvenient or undesirable;

(c) if the OFT applies to amend its Statements of Case prior to the trial of the Preliminary Issues the Parties will seek the consent of the Court to the adjournment of the trial so as to permit the proposed amendment to be effected, provided that if the OFT applies to amend its Statements of Case as aforesaid less than 60 days before the date fixed for such trial the Banks may decline to agree to adjourn the trial;

(d) the Parties will seek new directions from the Court for further pleading and as necessary for the preparation for and/or holding of a trial or trials of the Preliminary Issues and/or the Substantive Issues.

4. APPEALS BY THE BANKS

4.1 If (i) the Preliminary Issues are determined prior to the Substantive Issues, and (ii) any Bank appeals any part of the Court’s determination, then:

(a) Subject to (b) below, the Bank/s in question will seek to have any such appeal, whether to the Court of Appeal or beyond (including a reference to the European Court of Justice, if any), heard on an expedited basis, and undertake to take all reasonable steps to ensure that the said appeal is conducted and determined on an expedited basis as soon as is reasonably practicable;

(b) but the OFT reserves the right to apply at any stage for the trial of the Substantive Issues to be held before any appeal (at any level) is heard, or for any appeal to be stayed pending the trial of the Substantive Issues.

4.2 If:

(a) the Court holds, in relation to the Preliminary Issues, that the Relevant Terms and/or Relevant Charges are not susceptible to an assessment of fairness under the 1999 Regulations; and

(b) at that time the OFT has not yet concluded the Investigation; and

(c) the OFT appeals that decision, and continues to conduct its Investigation, then the Banks agree to continue to cooperate with the Investigation to enable it to be completed expeditiously notwithstanding the finding of the court of first instance.

5. COSTS

Each Party is to pay its own costs of and associated with the Proceedings and of any appeals by any Party, and accordingly no Party will seek an order for costs against any other.

6. FSA

6.1 If, at any time after the completion of the trial at first instance of the Preliminary Issues, the FSA wishes to join in the Proceedings, then the Parties agree not to oppose such joinder and clauses 3.1(b) to (d), 4.1 and 5 above shall apply to the FSA mutatis mutandis.

6.2 In the meantime, the OFT and the Banks will keep the FSA informed of the progress of the Proceedings and, in particular, will serve on the FSA copies of any Statements of Case, evidence and other documents that they serve on each other as if the FSA was a party to the Proceedings.

6.3 The Banks agree that the OFT may share with the FSA any information that the OFT receives from the Banks during the course of the Investigation and the FSA agrees to hold such information subject to section 348, Financial Services and Markets Act 2000.

7. GENERAL

7.1 Subject to paragraph 7.4, this Agreement comes into effect at 7.00am on 27 July 2007 and not before.

7.2 Nothing in this Agreement shall affect the market study of personal current accounts which the OFT is presently conducting.

7.3 It is intended that this Agreement shall be a public document.

7.4 This Agreement may be executed in any number of counterparts and by the Parties and the FSA on separate counterparts, but is not effective until each of the Parties and the FSA has executed at least one counterpart.

7.5 A copy of the signature page to this Agreement that is sent by facsimile shall constitute adequate proof of the execution of this Agreement by the relevant party.


The Banks Question and Answers

What is happening?

The Office of Fair Trading (OFT) and a number of UK financial service providers, including Nationwide, started a court case on Friday 27 July to decide on the legality of unauthorised overdraft charges.

This case is being called a test case because the decision will clarify the law in this area and is likely to apply to all current and new claims against current account providers about unauthorised overdraft charges.

We will continue to post updates on our website to keep customers informed of progress on the test case as this could run for at least a year.

What will happen to customer requests for charges to be refunded?

Customers who feel they have been asked to pay fees in error should still contact the Society and their request to refund these fees will be handled in our normal way.

What will happen to customer complaints about the level, fairness or legality of unauthorised overdraft charges?

We will not be resolving customer complaints on the level, fairness or legality of unauthorised overdraft charges while the test case is running. If you do complain about your unauthorised overdraft charges, we will write to tell you that we have received your complaint and that we will record it on your file. When a final decision is reached in the test case, we will contact you as soon as possible to tell you how we will resolve your complaint. We will apply the decision in the court case to all complaints we receive.

Why are you allowed to stop dealing with unauthorised overdraft charge complaints during the test case?

We applied to the Financial Services Authority (FSA) for a suspension of the normal timetable for dealing with unauthorised overdraft charge complaints. The FSA decided that, in the circumstances, it was appropriate to grant us a suspension of our obligations under the FSA's complaint handling rules while we sought legal certainty on this issue. The suspension is subject to a series of conditions designed to protect a customer's rights. You can read the form of the FSA suspension (direction) : here

All customers who have made a written complaint on unauthorised overdraft charges but who have not yet had their complaint resolved will receive a letter to explain the position with respect to their complaint.

Can I make a court claim for a refund during the test case?

Yes, but we will apply to the court to put your case on hold while the test case is running. This is because the issues being raised in customer complaints on unauthorised overdraft charges are being considered in the test case.

Can I complain to the Financial Ombudsman Service about my bank charges?

The Financial Ombudsman Service (FOS) has decided not to review complaints while the test case is running. If you do complain to FOS, you will receive a letter explaining that.

What if I have already been made an offer?

We will stand by any offer to settle a complaint or court claim that we have already made to our customers. If you have received an offer to settle from us, we will be writing to you again shortly. Our letter will explain that customers have two months to decide whether to refuse our offer and wait for the decision in the test case. If you do choose to refuse an offer, your complaint or claim will be held and recorded by us until there is a final decision in the test case. We will then contact you again as soon as possible to finally resolve your complaint.

I have already accepted an offer from you. Will my claim be revisited?

If you have accepted a 'full and final settlement', we believe it unlikely you would be awarded a further sum even if the test case indicates a potentially larger amount. However, this does not preclude you from asking for repayment of any new charges incurred if the courts find they are unlawful.

How long will the test case take?

At this time it is too soon to give any exact timescales for a conclusion to the test case but it could go for more than a year. We have agreed with the OFT and the FSA to conduct the test case in an efficient, prompt and orderly way.

Where can I find out more?

You can contact us through your branch or by calling us on 0845 302010.

Alternatively, you can find more information through the following links:

The Financial Service Authority

The Office of Fair Trading

The Financial Ombudsman Service


Financial Obudsman Statement

26 July 2007

In light of the agreement announced today between the Office of Fair Trading (OFT) and a number of representative banks - to take a "test case" to the High Court about unauthorised overdraft charges - the ombudsman service has confirmed it will put on hold its own work on complaints about these charges, pending the outcome of the legal proceedings.

The law is one of the issues that the ombudsman has to take into account when making decisions on individual cases - and this important "test case" involving OFT and the banks is expected to give vital clarity on the key issues of law involved in disputes about unauthorised overdraft charges. Responding to the news about the proposed High Court "test case", Tony Boorman, principal ombudsman, said today:

This year the ombudsman service has been dealing with tens of thousands of enquiries and complaints about bank charges - and county courts across the UK have similarly been coping with significant volumes of bank-charge claims.

In the cases that the ombudsman service has settled so far, all disputed unauthorised overdraft charges have been repaid - but on a voluntary "goodwill" basis, without the ombudsman reaching the stage of investigating the merits of the legal issues. Meanwhile, cases heard in the county courts have so far resulted in a range of outcomes - with inconsistent and unpredictable judgments and no clear legal precedent being set.

So it's in the interests of everyone involved - consumers with current accounts, the courts, the banks and other current-account providers - that the High Court "test case" announced today should settle the legal uncertainties relating to the level, fairness and lawfulness of unauthorised overdraft charges.

We agree that it's also in the general interest for the ombudsman service to suspend its own work on complaints about unauthorised overdraft charges, while waiting for the High Court to make a decision on the significant legal issues involved.


It is expected that the decision by the ombudsman service to suspend further work on complaints about unauthorised overdraft charges will be reflected by a similar response by the county courts. For the county courts and the ombudsman service, the High Court "test case" should mean that very significant volumes of cases can be managed in a fair, cost-effective and orderly way.

The ombudsman service's decision to put complaints on hold - while the key legal questions are answered - does not affect consumers' ability to bring complaints to the ombudsman about other banking-related problems, including financial difficulty or hardship.

To help with the fair and orderly management of consumer complaints about unauthorised overdraft charges, the Financial Services Authority (FSA) has announced today that banks and other current-account providers can also put cases on hold, pending the "test case" decision. Once the law has been clarified, it should then be possible for these cases to be settled in line with what the High Court decides.

There is more information about how today's "test case" announcement affects complaints to the ombudsman service in the ombudsman's consumer factsheet on unauthorised overdraft charges.


FSA Waiver Guidance Document

This gives the banks directions as to how the waiver should be implemented and template letters to send to their customers for various scenarios.

See here


Forum

Cases Stayed Pending OFT Test Case. See here


Related Pages

OFT v The Banks: Read This If You're Worried

Stays re: OFT Test Case

Application for Removal of Stay: Updated

Application for removal of a stay