Bank charges victory still years away

Although the Court of Appeal resoundingly backed claimants, the banks still have years of fight left in them.

The Court of Appeal recently resoundingly agreed with the High Court that the Office of Fair Trading is allowed to decide whether bank charges are fair using the Unfair Terms in Consumer Contracts Regulations. Cliff D'Arcy wrote about it here.

The three judges in the Court of Appeal said, now that four High Court judges have considered the case, the banks should drop it. They're completely satisfied that the case should end now, after two stages. Hence, they ruled that the banks may not further appeal to the House of Lords.

Stages three and four are yet to come

The banks don't have to accept that though. The banks can ask the House of Lords to hear the case anyway: they can appeal for an appeal. This would be the third level in this ongoing bank charges case. It won't end in the Lords either. The fourth stage will be for the banks to take the case to Europe.

Delaying this case further is in the banks' interests, even if they think they'll ultimately lose: it delays having to make repayments, it allows them to continue charging in the meantime and, as time goes on, the number of people claiming for older charges will probably drop.

Stages five to eight will follow

The current court case is just to decide whether or not the OFT is allowed to assess the charges for fairness. The case is not deciding whether the charges are actually unfair. Once this current case is settled, or perhaps even sooner, the OFT will have to mfake a decision on charges. It's currently still investigating.

It'll then have to tell the banks what they should do. This may just be a cap on bank charges, perhaps up to £12, which is what it got the banks to do for credit-card charges. Alternatively, it may order the banks to refund everyone all the charges. Or it may rule something in between.

Depending on how heavy the OFT is, the banks might say, 'Erm, no, actually.' And that is extremely probable. Again, banks will want to fight and delay as much as possible.

In order to get your money back, you would either then have to resume your individual fight in the County Courts, or you'll have to rely on the OFT to take this back to the courts. This time, the courts would decide once and for all whether the charges are unlawful.

This would mean several more years of hearings. Once again, it'd start in the High Court. It'd then go to the Court of Appeal and the House of Lords, and finally Europe.

A modification to the waiver

The Financial Services Authority (you know, that organisation that has done such a good job regulating banks in the past decade) has extended the banks' waiver for another six months. The waiver gives banks permission to ignore your written complaint about charges, other than a cursory acknowledgement of it.

The FSA has also stopped the Financial Ombudsman Service (FOS) from dealing with these complaints. Prior to this, the FOS had a 100% success rate helping tens of thousands of people to get their money back.

Furthermore, the FSA has paved the way for many of the small-claims courts to put all cases on hold. (One or two courts might decide to keep allowing claims, and most should still hear claims from people in considerable financial hardship.) Put another way, the FSA has taken away all our legal recourses to seek justice.

The tone of my last two paragraphs should make it clear what I think about the waiver granted to the banks. However, Marc Gander from the extremely popular Consumer Action Group proposed an excellent idea (he mentioned it briefly on BBC Radio 4's Money Box), which I hope the FSA will listen to. He suggested that the waiver could have two modifications to make it more friendly for the consumer:

1. No more default notices. Whilst this issue is ongoing and undecided, banks should be forbidden to issue default notices on people who are unable to pay bank charges. Negative credit-file entries make borrowing, consolidating and moving debts much more expensive. (Once this is finally over, we'll likely find that consumers start to reclaim not just the £2.6bn per year in charges, but also any extra interest they've had to pay as a result of increased borrowing costs. That'll cost the banks much more than the charges themselves.)

2. A ban from enforcement action. Gander also suggested a ban of enforcement action. He didn't propose details, but I suggest that this would have to be not just on the charges themselves, but on any interest accrued on those charges too.

My ongoing recommendation

In 2006 alone, 1.4m accounts incurred charges of over £500. Half a million cases are already on hold in the County Courts. I've suggested from the beginning that you get in the queue.

It also seems that, despite the claims of the banks' leading propaganda organisation (the British Bankers' Association), customers in financial hardship are not being looked after. Gander points out that there are no clear hardship guidelines, and it's evident from the Consumer Action Group's 210,000 members that it's very exceptional when a bank agrees to process a claim.

I think that clear hardship guidelines should be written into the FSA's waiver. But I don't hold out much hope.

In the meantime, if you have financial hardship, you should strongly consider continuing with your claim:

• 1. You must write to the bank with your complaint as normal. (It's all in my guide to reclaiming charges.)
• 2. When your complaint is rejected, see if the Financial Ombudsman will help you. Make it very clear that you're struggling at the very beginning of your complaint and include any evidence of that you can.
• 3. If (probably when) that fails, you can try the County Court. Again, explain your financial difficulties and provide evidence at the earliest opportunity, or your claim may be simply filed like everyone else's.

> Read Is It Right To Reclaim Charges?

> Compare current accounts with lovemoney.com