from a weakening domestic market and volatile global credit
conditions, leading UK banking groups such as HSBC, Royal Bank of
Scotland and Barclays now face the prospect of paying back billions
of pounds in fees if a consumer-fuelled ruling that they have been
overcharging customers for years goes against
them.
The UK’s Office of Fair Trading (OFT), a government department, has
been given the go-ahead to assess the fairness of overdraft and
other charges levied by UK financial institutions following a High
Court judge’s ruling that the fees are subject to Unfair Terms in
Consumer Contract Regulations (UTCCR).
However, the 119-page judgement, which made no pronouncement itself
on the fairness of the charges, did contain some good news for an
industry which remains unswerving in its belief that the charges
are reasonable.
Go deeper with GlobalData
The judge ruled the charges are not fines disguised as services,
for instance, and consequently cannot be deemed to be unenforceable
penalties under common law. Banks’ terms and conditions were also
ruled to be sufficiently intelligible to consumers, though fault
was found with “certain specific and relatively minor” aspects of
language used by Abbey, Barclays, Clydesdale and HBOS.
“Without getting it all our own way we are satisfied with a number
of areas of the judgement,” Eric Leenders, executive director of
retail at the British Bankers’ Association (BBA), told
RBI.
The case dates back to late 2005, when UK consumers first started
to successfully reclaim what they saw as excessive bank charges.
The campaign has attracted widespread media attention despite the
low overall cost of banking in the UK compared with other developed
nations. The UK’s Big Five – HSBC, Royal Bank of Scotland/NatWest,
Barclays, HBOS and Lloyds TSB – paid back more than £549 million
($1.1 billion) in charges to customers in 2007 before the Financial
Services Authority put outstanding claims on hold last July.
The latest ruling is an incremental step towards a final judgment.
All parties will decide at a case management conference on 22 May
whether to appeal the ruling. Any such appeal would inevitably
prolong the case, with the possibility of further appeals being
made to the House of Lords and even the European courts, though the
OFT can continue its assessment of the charges without waiting for
the outcome of that meeting.
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By GlobalDataComplicating matters further
Though the judgement is still being digested by the industry,
Leenders believes appeals are being actively considered by both
sides, and suggests possible calls for supplementary judgements may
complicate matters still further.
Banks stand to lose billions should the OFT ultimately win the
case. The number of claims currently on hold in the UK’s County
Courts as a result of the FSA waiver is estimated to total around
£700 million, with many more expected to materialise in the wake of
a pro-OFT ruling. A cap on future fees and charges would also
likely be imposed, a move which would have huge implications for
the UK banking sector.
The irony of the current debate is that the consumer banking
environment in the UK is relatively benign in terms of fees and
charges compared to other global markets. Statistics from the BBA
show average annual account fees in the UK stand at less than €20
($31) per customer, less than half the average for other European
nations such as Sweden, Ireland, Germany and France, and far below
the €120 ($186) in Italy.
“Fee-free banking is an idiosyncrasy unique to the UK and it would
be a shame for it to disappear. But the question is how it would
survive if future judgements go against the banking industry. You
have to ask if losing that is really bringing a benefit to
customers,” Leenders said.
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