UK: Bank Charges – The Debate Goes On

Last Updated: 14 May 2009
Article by Edward Davis and Sue Millar

In The Office of Fair Trading v Abbey National Plc and Others [2008] EWHC 875, the test case launched by the OFT into the legitimacy and fairness of bank charges, the High Court found that the charges do not represent unenforceable penalty clauses, but it held that they remain susceptible to an assessment of fairness by the OFT under the Unfair Terms in Consumer Contracts Regulations 1999 ("the Regulations"). Following an appeal by the eight institutions who are party to the proceedings ("the Banks"), the Court of Appeal has now handed down its judgment, which upholds the decision of the lower court, albeit for somewhat broader reasons.

The Regulations were drafted to implement the European Directive on unfair terms in consumer contracts, with the principal intention of protecting the rights of consumers in their contractual dealings with suppliers and to set out the circumstances in which a contractual term should be regarded as unfair. Terms will be regarded as unfair under the Regulations if, contrary to the requirement of good faith, they cause a significant imbalance in the rights and obligations of the parties to the contract, to the detriment of the consumer. In those circumstances, any such offending terms will not be binding.

The Court of Appeal agreed with the lower Court that, providing a term is in plain and intelligible language, an assessment of its fairness must not relate to:

a) the definition of the main subject matter of the contract; or

b) the adequacy of the price or remuneration, as against the goods or services supplied in exchange.

If the intended assessment of the provisions in question could be classed as falling into either of these two categories, such an assessment under the Regulations would be precluded.

In considering this point, the Court of Appeal had regard to the nature of the services provided by the Banks and the manner and terms in which the standard documentation was provided to consumers, but also to the quantum of the payments in question, the services to which they were said to relate and any other payments required under the contract.

The key test was whether the relevant charges were part of the essential bargain between the Banks and their customers. By way of illustration, the Court of Appeal developed something of a sliding scale to assess the terms in question. Where the charges had been expressly negotiated between the Bank and the customer, they would not be subject to assessment under the Regulations. The more closely related the payments in question were to the essential bargain between the Bank and the customer, the more likely they were to be exempted from an assessment of fairness under the Regulations. Conversely, the more ancillary the payment terms were, the less likely they were to have come to the direct attention of the customer at the time the contract was entered into, and the less likely it was that an assessment of their fairness would relate to "the adequacy of the price or remuneration, as against the goods or services supplied in return" and thus be precluded.

The Court of Appeal noted that the underlying purpose of the Regulations was to protect consumers in circumstances where the particular terms of the contract are not freely negotiated between the parties and, as such, had particular regard to the position from the point of view of a typical consumer. Sir Anthony Clarke's judgment noted that "it seems unlikely in the extreme that the typical customer reads them [the terms]. In such circumstances, where the majority of the terms are not bargained directly between the parties and where it is not straightforward to identify the "price or remuneration" for the package of banking services, it seems to us... it is necessary to require a narrow definition of "price or remuneration"."

In addition, the Court of Appeal found that the charges incurred by a customer in circumstances where they have entered into an unauthorised overdraft are only triggered in contingent circumstances, in a similar way to default charges which are triggered following a breach of a contract (the Law Commission having already indicated that such contingent charges should be subject to review for fairness under the Regulations). The contingent nature of the charges supported an argument that the provisions were incidental or ancillary.

In light of the above, the Court of Appeal concluded that the relevant charges were not part of the essential bargain between the Banks and their customers and were not, therefore, exempt from an assessment of fairness under the Regulations.

Practical implications

The OFT will continue with its assessment of the fairness of the Bank's charges, with a view to reaching a final decision by the end of 2009. That said, this timetable may be at risk in view of the proposed forthcoming appeal. Although the Court of Appeal refused the Banks permission to appeal to the House of Lords, the Banks have since applied directly to the House of Lords and permission was given to appeal on 31 March. The OFT hopes that the appeal hearing will take place before the end of July. In the meantime, the large number of actions brought by individual consumers against the Banks will continue to be stayed pending the ultimate outcome of this test case.

This article was originally written for Stephenson Harwood's quarterly publication, Finance Litigation Legal Eye. If you would like to receive this publication, please contact Stephenson Harwood (link to Stephenson Harwood website here www.shlegal.com ).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.