Recent UK developments
Banks in the UK have been defending claims by the UK's consumer protection body, the Office of Fair Trading (OFT), that charges for bounced cheques and overdrafts (the Charges) are unfair under the Unfair Terms in Consumer Contract Regulations 1999 (the Regulations).
The purpose of the case was two-fold. First, the parties sought to resolve whether under the Regulations the OFT could investigate the 'fairness' of UK banks' terms and conditions under which the Charges are made. The second issue was whether the Charges could be considered 'penalties', payable on a breach of contract, which technically are unenforceable at common law. The second question was relevant to the multitude of claims being brought against the banks by their customers. (The OFT has a duty under the Regulations to consider any complaint made to it that any contract terms drawn up for general use are unfair and could potentially seek an enforcement order against banks under the Enterprise Act 2002.)
Mr Justice Andrew Smith of the High Court delivered his judgment on 24 April 2008. He concluded that banks' terms and conditions were subject to regulation by the OFT under the Regulations as the terms and conditions in relation to the Charges did not fall within the Regulations' exemptions to assessment for fairness. However, he also concluded that the Charges levied by banks were not unenforceable as 'penalties' at common law as the Charges were not payable upon a breach (there was no contractual commitment for the customer to breach, but rather the charges were payable following a request by the customer for an overdraft facility).
The OFT is now considering the judgment and whether to bring a second case to establish whether the Charges are fair. Meanwhile, the banks are considering an appeal of the High Court's decision that the banks' terms and conditions did not fall within the exemptions to assessment for fairness in the Regulations. Any appeal could delay the settling of claims brought by customers.
Credit card default charges
Issues over bank charges generally in the UK began in early-2006 when a report issued by the OFT stated that credit card default charges had been generally set higher than was considered fair. The OFT set a £12 threshold for default charges unless there were exceptional business factors. It added that, should default charges be in excess of the threshold, credit card issuers would be likely to face litigation by the OFT but that ultimately only a court could decide whether a charge was unfair or not. Whilst credit card issuers disagreed with the report, they did agree to reduce the default charges. The OFT suggested that the broad principles in relation to default credit card charges would likely to be relevant to other standard agreements, such as those for bank current accounts.
It has been suggested that, should the Charges be considered 'unfair', banks will be forced to levy charges on all current accounts in order to counteract any cap on Charges imposed by the OFT (currently, the only charges levied on current accounts in the UK are those providing additional services, for example travel insurance). This suggestion has been strengthened by the fact that since credit card default charges have been reduced, customers have experienced increases in interest rates and indeed, there is anecdotal evidence that some accounts with additional services are already experiencing a hike in current account charges.
With regards to the multitude of claims for refunds of Charges that the courts are processing, an agreement has been reached by the banks and the OFT that any decisions by the courts will be postponed pending the outcome of the above cases except those brought by customers in 'hardship'. Despite the agreed postponement, many money information sites in the UK are advising customers to continue claiming refunds. It has been suggested that should the postponement of claims be lifted, total claims could reach in excess of £20b.
Recent Australian proposals
In Australia, the Productivity Commission has recently released a report following its inquiry into Australia's consumer policy framework. The report concluded that 'unfair' consumer contract terms which are detrimental to consumers should be prohibited under new national consumer law. The new law would be based upon the existing consumer provisions in the Trade Practices Act 1974 (Cth) but modified to address perceived gaps. A similar provision already exists in the Fair Trading Act 1999 (Vic) but certain contracts are exempted from its application (eg those covered by the Consumer Credit Code). The Commission has recommended, among other things, that the new legislation should clarify what is 'unfair' and apply only to non-negotiated contracts.
If introduced, this proposed legislation arms Australian consumers (as it has done in the UK) with a new weapon of attack against the level of bank fees and charges.
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