Bank Charges Case Review
Legal anlaysis of the test case result
2. LEGAL ANALYSIS/CASE REVIEW
The Law
The Unfair Terms in Consumer Contracts Regulations 1999
-regulation 5(1) states that
"A contractual term which has not been individually negotiated
shall be regarded as unfair if, contrary to the requirement of good
faith it causes a significant imbalance in the parties' rights and
obligations arising under the contract, to the detriment of the
consumer."
The OFT's Arguments
It has been argued since 2007 that terms relating to bank
charges are unfair under regulation 5(1). The OFT has specifically
argued that the reason for the unfairness is that the charges
do not accurately represent the expense incurred by the bank
where the customer goes overdrawn, and has referred to
Schedule 2 of the regulations where there is a list of examples of
unfair terms which includes:
"terms which have the object or effect of... requiring any
consumer who fails to fulfil his obligation to pay a
disproportionately high price"
The Banks' Arguments
The Banks have not argued that terms relating to bank charges
cannot be considered unfair - they merely argued that the
reason for unfairness put forward by the OFT is invalid.
They have argued that terms imposing overdraft fees etc relate
to the price or cost of service provided (i.e. a current account).
If this is the case, then under regulation 6(2) it is not possible
to claim that the fees are unfair because they don't represent
value for money:
"... the assessment of fairness of a term shall not relate... to
the adequacy of the price or remuneration as against the goods or
services supplied in exchange."
This regulation exists to preserve freedom of contract and the
principle that prices should be determined by market forces not
regulators. For example, we can't go in to Waitrose, buy a sandwich
and then claim that the contract is unfair because the goods are
over-priced!
The Supreme Court Decision
The Court agreed with the bank that overdraft fees etc
represent the price that we pay for a current account, and
not, as argued by the OFT, ancillary charges for optional extras.
It is therefore not possible to argue that these terms are unfair
merely because the charges are excessive in relation to the service
supplied to the customer:
"I would declare that the bank charges levied...in respect of
unauthorised overdrafts.... constitute a part of the price or
remuneration for the banking services provided and... no assessment
under the Unfair Contract Terms in Consumer Contracts Regulations
1999 of the fairness of those terms may relate to their adequacy as
against the services supplied."
Per Lord Walker, para.51 of the judgement
However, the court clearly stated that the OFT can still argue
that overdraft charges are unfair - they just have to provide a
different reason for the unfairness:
"...they [unfair overdraft charges] will still be open to attack
by the OFT on the ground that they are 'unfair' as defined by
Regulation 5(1), but the attack cannot be founded on the allegation
that the relevant charges are excessive by comparison with the
services which they purchase"
Per Lord Phillips, para.57 of the judgement
Claims Financial