The Supreme Court Decision 25.11.09 

Today, 25.11.09 five judges of The Supreme Court (formally The House of Lords) decided that the Office of Fair Trading does not have the legal power to assess bank current account charges for fairness.  This decision is devastating for many of our clients awaiting this decision as it has dealt a serious blow to the likelihood of clients recovering any of the thousands of pounds of charges many of them have been charged over the last 8+ years.

The court concluded that these charges are the 'main subject matter / price or remuneration for the service provided' and therefore fall outside the remit of the relevant legislation, The Unfair Terms in Consumer Contracts Regulations 1999.

Previously The Appeal Court, (3 judges one of which was the Master of the Rolls) and The High Court had concluded that these 'bank charges' ARE subject to the law that protects consumers from punitive and unfair treatment by their banks, indeed the Appeal Court had refused permission for an appeal to The Supreme Court on the grounds that this appeared to be a waste of the courts time, so clear was the Appeal Courts view on this area of law. 

That said The Supreme Court is the final arbiter of these matters and they have concluded that the charges levied by the defendant banks are not assessable for fairness under UK law and effectively the banks can charge whatever they like when you fail to keep within agreed borrowing limits, or borrow without their permission!

As you can imagine we are terribly disappointed with this decision, however it is too soon to say that ALL claims are now left without ANY chance of success.  I understand that the OFT is considering alternative legal remedies and you can click here to read their Press Release on this issue.

In due course, once the full implications of this decision are known, I will write to all clients advising the best way forward.

It is right and fair to say that some banks charge MUCH more than others. The greatest power we all have is our ability to force change by not doing business with banks that charge the most punitive charges.  Over the next week or so I will be looking to see the response of the banks to this decision, particularly the big 4 (RBS/Natwest, Lloyds/HBOS, HSBC and Barclays) who historically, in my experience, levy the most punitive charges and provide very little assistance to clients who are experiencing financial difficulties. They have made huge profits from charges levied on those experiencing the most difficulty.  For the record, I bank with one of these big 4 and have for 20+ years.  I am a shareholder in that bank.  My mortgage is with a division of that same bank.  I have had many business and personal accounts with my bank and very rarely been charged any of these disputed fees!   BUT I am currently 'shopping around' for a new bank.  WHY? It is entirely unacceptable in a just society, in my view, whether it be legal or not, for a bank to charge a £39 'unpaid direct debit fee' for NOT PAYING a £5 direct debit by an old age pensioner to Guide Dogs for the Blind!  It is unacceptable for banks to PROFIT to the tune of £2.6 billion per year from the financial difficulties of their clients.  It would be fairer to say, 'we can't provide you with a number of banking services, such as direct debits, cheque books and payment cards as you are unable to keep within our agreed terms, so you can deposit money and withdraw cash as and when you have cleared balances, but we will not allow you to use other banking services if you can't keep within agreed limits'.  The banks have, for MANY years decided to be 'complicit' in 'breaches' by their clients in order to justify levying MASSIVE and punitive 'fines' very often on those who can least afford it in our society!

Banks often say that people who incur these charges are 'spendthrift and improvident', 'careless and feckless' with money that is not their own. They argue that it is a reasonably simple matter to keep within agreed limits and those who don't must appreciate that they are using other people's money without consent and there is a cost to that.  In my experience, there are such people, BUT the very great majority of the many hundreds of these cases I have looked at in detail are people simply struggling to make ends meet in difficult circumstances.  I would highlight this with a typical scenario of someone who loses their lob and is out of work for a few weeks.  

Lets say you have lots of your monthly expenditure set up on direct debit, as we have all been encouraged to do, indeed the banking industry has spent a small fortune promoting the direct debit as a convenient and FREE payment method!  Perhaps you have your mortgage, utility bills, Sky, TV License, insurance all set up to go out by direct debit.  A miscalculation or oversight means one of these direct debits takes you over an agreed overdraft limit.  You get charged an unauthorised overdraft charge increasing the unauthorised borrowing further.  Then two or three direct debits get returned unpaid by the bank, usually small amounts, TV Licence is a classic, at about £12 or perhaps that £5 per month donation to The British Red Cross, payment declined and you get charged £39.  By the end of the month, you have £250 of charges and you are now over your overdraft limit by £400!  You get a new job but your first wages don't come in for 4 weeks and it is only paying £900 net.  The charges you have already incurred will wipe out more than one quarter of your entire first months salary.  You speak to your bank and ask for an overdraft extension.  They agree it BUT only a £400 extension, which you are already right up against.  You borrow a few hundred pounds from a friend or family member to see you through to your next pay day, deposit it in your account believing it to be just enough to see you through, but you hadn't accounted for the charges and overdraft interest that were pending, incurred while you were waiting for the bank to agree the overdraft extension and they debit your account and took all your available funds the day before a raft of payments were due to go out.  Again these payments are returned unpaid and you get more charges.  On and on it goes, charges upon charges.  You never get caught up.  Meanwhile your mortgage payment has been returned a few times and they have charged you £30 for each missed payment and a £50 monthly arrears fee.  Your credit card payments have been missed and they have charged you a £12 late fee and a £12 over limit fee.  Your council tax direct debit has been missed a few times and they are now refusing to let you pay by installments and are demanding the full outstanding balance of your annual charge, £800 in one go, you simply do not have it.  They take court action and you are hit with court and legal fees.  They pass the recovery to a shifty bailiff firm who call at your house while you are out working and leave a note that they called and they have charged you £40 for the visit.  They say they will call back and take away your furniture if you don't pay, but you can't so you sit and worry all night and can't sleep.  You mortgage company want you to discuss your financial difficulties with a 'debt counselor' and send one to your home, without telling you and you get charged a £89 'debt counselor fee' that has been added to your mortgage account and is attracting interest for the term of your mortgage.  By the time you redeem your mortgage in 20 years, with compound interest that 'debt counselor fee' has cost you £500!  You ask the mortgage company if you can make payments against your mortgage arrears over the counter, with cash as you have 'maxed out' your overdraft and can't have your wages going in there anymore.  They agree but they charge you £20 per month fee for making payments by method other than direct debit. (It is true, they really do charge this).  You remember that you were encouraged to take out Payment Protection Insurance on your credit card and mortgage to protect you against unemployment but when you call they explain that you were only out of work for 26 days and the first 30 days are not covered.  You were never told this when you were sold the insurance and you are livid that you paid all that insurance for all those years and now they will not pay out.  You try to cancel the credit card insurance but they put you through to a call centre in India who put you on hold for 20 minutes and by the time the person you need to speak to comes on the line all your credit on your mobile is used up and you get cut off.  You call again and after 30 minutes on hold again they tell you that the insurance product can't be cancelled by phone you have to write to them, despite the fact that they sold it to you over the phone.  You write to them, but 3 months later they are still debiting your account with the insurance premiums and they deny receiving your letter.  In the meantime the insurance premiums being added to your credit card account have taken it over it's limit and you have incurred more £12 over limit fees and interest.  6 months later after being out of work for less than 1 month you have incurred £1500 of bank unauthorised borrowing charges, £500 of mortgage arrears charges, court, legal and bailiff charges of £250, over limit and late fees on your credit card of £154, and all of this attracting interest at rates of up to 30% APR!  Your current account is now £2000 overdrawn and you have stopped using it but the charges and interest are still piling up.  The bank refuse to freeze the charges and interest, they are demanding full payment of the overdraft.  Your credit card that is over the credit limit, largely as a result of insurance premiums that never covered you when you thought they would and charges that were largely as a result of insurance premiums being added that you had cancelled.  Now your mortgage company starts legal proceedings to repossess your home and although the court suspends the repossession pending a payment of the monthly installment plus £50 per month to the arrears, the mortgage lenders legal fees to repossess your home are £900, have been added to your mortgage account and are attracting interest.  By the time you redeem this mortgage in 20 years the interest on that £900 will be £4000! You decide to sell up, release your equity clear all your debt and start again fresh, but the value of your home has crashed because nobody can get a mortgage because your  prudent UK bank, who lectured you on financial responsibility, lent money to people in America who THEY called NINJAs (No Income, No Job or Assets), who unsurprisingly have defaulted and not only has your UK bank made some poor black family homeless in a place you will never be, their City Council is actually suing BIG BANK UK Plc for the cost of clearing the crack ghettos they created where once there were happy family's living.  Your estate agent calls round to value your property and you realise that not only is your house worth MUCH less than you thought, it isn't even enough to clear your debt, it is unlikely to sell anytime soon!

Do you recognise this person, struggling to make ends meet?  I see these people every single day, rarely the feckless spendthrift that BIG BANK UK Plc wants you to believe is the recipient of these unauthorised overdraft charges. 

 I believe wholeheartedly and with every fabric of my being that people, companies and indeed governments should live within their means and not borrow money to fund spending today that all our children will have to repay.  I believe that you should not borrow what has not been agreed in advance BUT that your bank should not ALLOW you to do so in order to levy what can only be described as massive unfair fines to enhance their profits and justify paying themselves offensive bonuses off the back of hard working people.  I also believe it is morally corrupt to word your banking contracts in a way that 'ALLOWS or PERMITS'  'unauthorised borrowing' so as to circumvent 100 years of English law on penalties so you can absolutely fleece your customers with penal charges at the time in their life when it may be the straw that breaks them financially!  I have seen it time and again and it sickens me.

The banks may be opening another bottle of champagne tonight in their ivory towers at Canary Wharf, celebrating a good day in The Supreme Court, but they need to remember that not so long ago they too were 'unauthorised borrowers'.  Angela Knight of the British Bankers Association, interviewed outside The Supreme Court today needs to remember that not so long ago they, the entire UK banking system, made financial commitments they could not keep and the UK taxpayer, as lender of last resort, made over £60 billion of 'secret loans' (unauthorised and unknown by us or our representatives in parliament until only this week), money lent to RBS AND HBOS in addition to hundreds of billions of pounds of support currently enjoyed by the industry as a whole.  I hope the Bank of England did charge them 'commercial rates' as they have stated, because, but for the support of the taxpayer, these were insolvent entities.  If one of my clients can be charged 600+% on a £4000 SECURED loan, because she is a bad credit risk, I hope these banks were similarly charged.  Of course not, god forbid these rogues probably paid 6% or less for our billions of pounds.

I suspect that the day of reckoning may be coming anyway for many of the banks.  I suspect that many of my clients in the most difficulty were clinging on by their fingernails hoping through hope that the OFT test case would save them from insolvency.  If that is not to be I suspect many will throw in the towel and declare bankruptcy.  The bank can have the house back; it is in negative equity anyway.  The bankruptcy will be discharged in a year and the loser will not be my struggling client, but the bank to whom he owed tens of thousands of pounds on loans, credit cards and that current account overdraft that is now pushing £3000 with charges.  But the bank has no money so they will go cap in hand to the taxpayer again, who also has no money and a debt mountain that is already unprecedented in our history.  So who actually loses all this money?  I will tell you who loses.  Come the next election we will see huge cuts in public services, massive increases in tax, but still the national debt will grow!  The UK government will just keep on selling bonds, just a fancy word for IOUs, largely sold to foreign companies and governments, some of whom are awash with cash following the huge spike in oil prices over the last two years.  They will keep on buying them as long as there is a secure sense of repayment.  But when they eventually wake up and smell the cancer of bad debt that is eating the UK economy, both personal, corporate and government and start asking for their IOU's to be honoured, god help us all.   Our country will have seen nothing like it in peace time.  Public sector pay will be slashed, share values and pensions funds will crash, the power will literally go off as the currency devalues and we can no longer afford oil and gas imports. 

I do not believe we have seen the bottom of this recession or even perhaps the worst of the banking crisis, and it may well be that this Supreme Court decision that the banks had prayed for will paradoxically set in train a set of events, namely large scale personal bankruptcies, that causes Big Bank UK Plc much more pain than if they had just swallowed the bitter pill and repaid these punitive charges in a fair and reasonable manner. 

For the record, JMP Partnership is still recovering record sums from these banks, JUST NOT BANK CHARGES. We have been recovering tens of thousands of pounds every month for sometime now in credit card charges, mortgage arrears charges and mis-sold payment protection insurance. Just this week one of our clients got over £22,000 back from Lloyds TSB in mis-sold Business Loan Repayment Insurance. This particular client has to date recovered more than £100,000 with our help, all either mis-sold PPI or credit card / mortgage charges, with massive amounts of interest, and we are not finished yet!

Last week one small mortgage lender, GMAC RFC was fined £4 million (reduced to £2.8m for co-operating) by the FSA for their poor treatment of clients in arrears and for levying excessive mortgage arrears charges and was ordered to start repaying more than £7 million back to clients.  Other mortgage lenders are facing similar problems and may have to repay much more!

The Financial Ombudsman Service is currently upholding more than 95% of complaints we file about the mis-selling of PPI and awarding damages in many cases in addition to substantial amounts of interest.

Our largest single recovery of PPI is over £28,000. One current pending PPI complaint (against First Plus OWNED BY BARCLAYS), upon which we have a favourable adjudication and are awaiting a final Ombudsman decision would have cost our client more than £33,500 had it run it's course. An insurance policy costing £33,500, but the maximum that the client could have claimed, in all but her death, was less than £28,000! Excellent value I think you must agree and clearly a case where the FOS is going to order the full repayment and damages!

Big Bank UK Plc may have won a verdict today on bank charges, but the huge flow of cash from their coffers will continue, perhaps even accelerate because they made huge profits for years by selling rubbish insurance policies that cost a fortune but were of little use to most people, and now they are having to repay it with interest and damages and it is making bank charges reclaiming look like chicken feed!

Many banks will have to borrow the money this year to pay those big City bonuses I suspect!