Bank Charges Campaign Gets Big in Japan

Today's FT reports that a landmark Japanese Supreme Court Ruling has left consumer credit lenders vulnerable to borrowers seeking to reclaim money by claiming that they have been overcharged in similar ways to the UK consumers over bank and credit card default charges.

This in a week when HSBC reported it has already paid out over £116 million to UK consumers; HBOS £79 million; and Lloyds £36 million. With the movement now going international, it now looks as if these sums will be tip of the iceberg.

Test Case on unauthorised overdraft charges

The following is a press release issued today by the Financial Services Ombudsman

ombudsman agrees that High Court "test case" is necessary - to settle legal uncertainty on unauthorised overdraft charges

26 July 2007

In light of the agreement announced today between the Office of Fair Trading (OFT) and a number of representative banks - to take a "test case" to the High Court about unauthorised overdraft charges - the ombudsman service has confirmed it will put on hold its own work on complaints about these charges, pending the outcome of the legal proceedings.

The law is one of the issues that the ombudsman has to take into account when making decisions on individual cases - and this important "test case" involving OFT and the banks is expected to give vital clarity on the key issues of law involved in disputes about unauthorised overdraft charges.

Responding to the news about the proposed High Court "test case", Tony Boorman, principal ombudsman, said today:

"This year the ombudsman service has been dealing with tens of thousands of enquiries and complaints about bank charges - and county courts across the UK have similarly been coping with significant volumes of bank-charge claims."

"In the cases that the ombudsman service has settled so far, all disputed unauthorised overdraft charges have been repaid - but on a voluntary "goodwill" basis, without the ombudsman reaching the stage of investigating the merits of the legal issues. Meanwhile, cases heard in the county courts have so far resulted in a range of outcomes - with inconsistent and unpredictable judgments and no clear legal precedent being set."

"So it's in the interests of everyone involved - consumers with current accounts, the courts, the banks and other current-account providers - that the High Court "test case" announced today should settle the legal uncertainties relating to the level, fairness and lawfulness of unauthorised overdraft charges."

"We agree that it's also in the general interest for the ombudsman service to suspend its own work on complaints about unauthorised overdraft charges, while waiting for the High Court to make a decision on the significant legal issues involved."

It is expected that the decision by the ombudsman service to suspend further work on complaints about unauthorised overdraft charges will be reflected by a similar response by the county courts. For the county courts and the ombudsman service, the High Court "test case" should mean that very significant volumes of cases can be managed in a fair, cost-effective and orderly way. The ombudsman service's decision to put complaints on hold - while the key legal questions are answered - does not affect consumers' ability to bring complaints to the ombudsman about other banking-related problems, including financial difficulty or hardship.

To help with the fair and orderly management of consumer complaints about unauthorised overdraft charges, the Financial Services Authority (FSA) has announced today that banks and other current-account providers can also put cases on hold, pending the "test case" decision. Once the law has been clarified, it should then be possible for these cases to be settled in line with what the High Court decides.

There is more information about how today's "test case" announcement affects complaints to the ombudsman service in the ombudsman's consumer factsheet on unauthorised overdraft charges:

http://www.financial-ombudsman.org.uk/faq/bank-charges.html

Is Britain A World Leader in Financial Services Provision?

A recently published report comparing Britain and Germany's banking systems cast dount on the claim that Britain is a world leader when it comes to financial services provision.

The report, "The British Banking System: A Good Role Model for Germany?" published by the Anglo-German Foundation for the Industrial Society and written by academics frm the Universities of Birmingham and Heidelberg, focuses particular attention on the levels of financial exclusion and over-indebtedness in the UK that have resulted from the demutualisation of building societies and an absence of proper regulation.

"there seem to be fewer problems with over-indebted households in Germany than in Britain. The more widespread use of credit cards in Britain could be responsible for this. Aggressive marketing of these cards as well as excessively high penalty charges to credit card users who pay late, or are unable to clear their balances, contribute to the problem of over-indebtedness. The punitive charging in Britain is indicative of much more widespread cross-subsidisation in the provision of current accounts – high-balance, low-volume users generally cross-subsidise low balance high volume users due to low deposit interest payments and low charges (for those who stay within authorised credit limits, with punitive charges for those who do not, or cannot).

The relatively high profitability of British banks in recent years may therefore owe much to exploitation of their ‘complex monopoly’ power. In contrast, the lower profitability of German banks is associated with a broader supply of financial services to small enterprises and low-income households. However, the Sparkassen (municipal savings banks) and co-operative banks, which are the most active banks in these market segments, have had an above average profitability in Germany. These findings should be borne in mind by advocates of increased concentration trying to shift the German system towards the British model.

Public sector and co-operative savings banks are no longer a significant force in Britain, and indeed the government has been encouraging the development of Community Development Financial Institutions (CDFIs) and credit unions to fill the gap. Advocates of privatisation of the German public savings bank should also bear this in mind."

OFT - No 'Quick Fix' on Bank Charges

The OFT has backed off from making an immediate intervention to help consumers recover bank charges. In a move that will disappoint those millions of consumers that have been on the receiving end of illegal charges the OFT has announced that a review of charging policies will take place alongside a wider 'in-depth' study of retail bank pricing. Full details of the study will be announced in late April, and it is expected to be completed by the end of the year.

In a statement released on 29th March, clearly influenced by the industry, the OFT expresses ongoing concern about the level and incidence of bank current account charges, but sets out its desire to look at the wider relationship between default charges and so called 'free' banking.

John Fingleton, OFT Chief Executive said: 'The UK retail banking market performs well in many dimensions, especially relative to international norms. However, the issue of bank current account charges is a matter of real concern to the banks' customers, and raises wider questions about competition and transparency of pricing. The initial scoping work we have undertaken has demonstrated to us that this is not only an issue for those people who are being charged, but also for customers who are not defaulting on their bank accounts.'

Debt on our Doorstep expresses concern that no action has yet been taken by the OFT to force banks to reimburse customers for the billions of pounds of unlawful charges that have been levied in the past six years, and that there appears to be a willingness to look the other way whilst charges are levied on those with the most financial problems in order to maintain a system of free banking for others.

Damon Gibbons, Chair of Debt on our Doorstep commented:

"The levying of unlawful fees on default is cross-subsidisation at its worst. It makes those with financial problems pay for free current account provision for those without difficulties. If the banks say that they would have to end free banking for the majority by staying within the law on default charges, then that would appear to indicate a real lack of competition in the sector.

Surely, banks should still be expected to compete on current account charges and stay within the law for people who have financial problems. Why it is taking the OFT so long to come that conclusion is a real mystery, but it isn't giving consumers a great deal of confidence in their regulator that's for sure."

Credit Unions Launch Current Accounts

The Association of British Credit Unions Limited (ABCUL) this week unveiled their new current account services, which aim to provide an alternative to high cost bank accounts (particularly by avoiding high cost default charges).

Speaking at the ABCUL AGM in Blackpool on 15th March, Chief Executive Mark Lyonette said:

“We can offer a current account service similar to the banks, but with all the added extras associated with a financial co-operative that is owned and run by its members, for the benefit of members.”

The accounts, which will include a debit card for purchasing goods and making cash withdrawals, will not feature an overdraft option, meaning no high charges or fees. People who require a bank account in order to benefit from Direct Debit and Standing Order payments, will be ideally served by the credit union current account.

Complaints about Default Charges Soar

The BBC reports that complaints concerning bank default charges are soaring, with over 1,000 people calling the Financial Services Ombudsman on this issue every day.

The Ombudsman is taking on about 150 penalty charge cases a week, but the number of phone calls it receives from consumers looking to find out how to get penalty charges refunded is far greater. On Wednesday, following coverage of the issue by BBC's Wathchdog programme, over 3,000 calls were made to the Ombudsman.

The level of complaints being made is being compared to the endowment mis-selling scandal and is now the single biggest area of consumer complaints.

"Previously the largest number of complaints we received related to endowments," a spokeswoman said.

"However, we are getting at least three penalty charge calls for each one about endowments at present."

Unlike the endowment mis-selling scandal, however, the regulators and Government continue to fail to force the industry to take pro-active steps to provide consumers with redress, leaving all of the onus for action on the individual. Perhaps that is the greatest scandal of all...

M.P's Debate Bank Charges

M.P's debated the issue of unlawful bank charges in Parliament last week. Matthew Taylor (Lib Dem), who brought the debate to highlight the £4.5 billion per year rip off, stated:

"Almost all of what is charged is profit, not costs. It is profit at the expense of hard-up customers. It is the biggest bank robbery in Britain, and it involves the banks robbing their own customers, especially their poorest ones."

Support for the call to limit bank charges also came from Jim McGovern (Lab), who raised the problem of multiple charges being made by banks for a single breach.

However, whilst the debate secured an admission of the problem from the Government (Ed Balls, Treasury Minister), the Government has no plans to force banks to refund the excess penalty fees levied on the back of either bank accounts or credit cards, leaving consumers with no other choice at the moment but to take individual cases through the courts.

Bailiffs Sent in Against Royal Bank of Scotland

The Guardian (Saturday 20th January 2007) reports that bailifs were sent into the Royal Bank of Scotland last week as part of Declan Purcell's action against them to recover excessive default charges. Mr Purcell had previously successfully sued the bank in the County Court for over £3,000 in overdraft fees charged against his small business account between 2002 and 2004.

Despite obtaining a judgment against the bank towards the end of last year, Mr Purcell's claim had effectively been ignored by RBS and no acknowledgement of the outstanding amount was ever given to him. Not to be deterred, Mr Purcell then issued a bailiffs warrant via the County Court, and last week the bailifs impounded computers and other office equipment in a London branch of the bank under the terms of a 'walking possession' agreement. This had the desired effect with RBS forced to cough up the cash to prevent the items being taken away.

Banks make record profits as customer battle debt

Sunday Mirror, 7 January 2007

Exclusive by Stephen Hayward, Consumer Correspondent

HIGH street banks are set to declare record profits of more than £40BILLION A YEAR - while their hard-up customers plunge deeper into debt.

The astonishing profits - which work out at £112million a day - are up from £34billion the year before.

They come at the expense of customers who pay £5billion a year in overdraft fees and £3billion for controversial payment protection insurance on loans, credit cards and mortgage repayments.

Last night anti-debt campaigners accused the banks of growing rich on the back of spiralling personal debt, which now stands at a record £1.3trillion.

The biggest single winner is HSBC, Britain's biggest bank, which made £13billion last year, up from £11.5billion in 2005.

Halifax Bank of Scotland, accused of ruining Christmas for Farepak customers after failing to increase its owners' overdraft last October, has racked up £5.5billion profits, up from £4.8billion.


The figures are due to be announced over the next two months. They come as millions face bigger home loan bills because of rising mortgage rates.


There has also been a surge in repossessions and personal insolvencies - expected to top 100,000 a year for the first time.


Critics say high street banks have pushed up overdraft charges -which the Office of Fair Trading is investigating - while offering paltry interest rates on accounts.


Further profits have come from financing lucrative takeover deals, switching customers online and closing local branches.


Niall Cooper of the Debt On Our Doorstep pressure group said: "If interest rates go up it is quite feasible the debt bubble will burst."


Stuart Bernau, boss of Nationwide, Britain's biggest building society, said: "It's natural that customers will question whether they are getting good value and service from their banks."


Pula Houghton, senior policy advisor at consumer group Which?, said: "People are being penalised for the smallest transgression."


Britons owe a third of unsecured debt in Western Europe, typically £3,000 in debt - double that of their continental cousins.



WHO'S RAKING IT IN
HSBC £13bn
RBOS/NatWest £9.2bn
Barclays £7bn
Halifax Bank of Scotland £5.5bn
Lloyds TSB £3.7bn
Abbey £940m
Northern Rock £610m
Alliance & Leicester £553m
Bradford and Bingley £333m


HOW THEY HIT YOU
INTEREST rates up to 18.3% on overdrafts - 29.8 per cent on unauthorised ones.
£25 CHARGE for bouncing cheque.
A 5% RISE to 16% on credit card rates.
MONTHLY fees on credit cards.
3% INTEREST on balance transfers.
A £3 CHARGE on credit card cash withdrawals.

OFT Issues Guidance on Unfair Credit

The Office of Fair Trading has issued guidance on the operation of the Unfair Credit Relationships test which will be introduced as part of the reforms brought in by the Consumer Credit Act 2006. The test will come into effect in April 2007 for new agreements signed after that date, and April 2008 for current agreements.

The guidance fails to set out a comprehensive view as to what an unfair relationship is, and there will be considerable uncertainty until test cases have been taken in the courts. However, there have been some revisions since the OFT consulted on it last year, and the OFT expresses the view that the courts will be able to take action against high cost lending.

The guidance states:

4.20..in the OFT's view there is clearly scope for the court to find that a credit relationship is unfair on the grounds that it involves excessive costs for the borrower. Section 140A(2) requires the court to have regard to all relevant matters and these could include the cost of the credit agreement or any related agreement. This appears to be endorsed by Ministerial statements in Parliament during the passage of the Consumer Credit Bill.

4.21 For example, the rate of interest charged under a credit agreement, or the rate or amount of other fees or charges, may be so much higher than those applicable generally in the particular market sector, or payable by borrowers in similar situations, as to make the relationship as a whole unfair to the borrower. They may also, in the particular circumstances, be oppressive or exploitive of the individual borrower even if they are in line with rates prevailing at the time in the particular sector.

4.22 In addition, excessive prices may be accompanied by other unfair terms or practices which may contribute to an unfair relationship as well as being susceptible to possible Part 8 action in their own right."

Debt on our Doorstep will be looking to work with agencies interested in taking test cases in relation to the cost of credit from April onwards. It should be noted that the guidance indicates that the cost of linked transactions (for example payment protection insurance and default charges can also be considered by the courts as part of an assessment of unfairness).

Default Charges - Citicards under fire

The Consumer Action Group report that a judge has found Citibank's default charges of £12 excessive and that they cannot justify fees in excess of £8. In an action brought by a Consumer Action Group user, the judge told Citicards that their current £12 charge was 'plucked out of thin air'. He went onto compare a default charge with the cost of sending out a solictors letter and concluded that a fee of only £8 could be justified. Given the use of automated systems, even that level of charge is open to challenge, but there has been little success to date in getting lenders to disclose the full details behind their charging policies.

Despite the OFT's much vaunted intervention to reduce credit card default charges to no more than £12, it continues to fail to take legal action against lenders to establish the true costs of default. Lenders, in the meantime, continue to charge multiple fees in order to increase their profits. So, a borrower that goes over their credit limit, fails to make the required repayment, and bounces a cheque would actually incur three separate £12 charges totalling £36.

In correspondence to Debt on our Doorstep in October 2006, the OFT stated that "...we will not investigate further a single default charge of £12 or less, but dual fees totalling more than that, flowing from a single instance of default, may merit further investigation."

Despite this statement, no action has been taken and no undertakings obtained from lenders to stop this practice.

Citibank also adopts the usual sub-prime tactic of removing 'promotional' interest rates if a borrower misses a payment, and reverting agreements to a much higher 'standard rate'. So, for example, although it currently advertises a Platinum card with a 'typical' APR of 17.9%, this would increase to its standard rate of 28% APR if a borrower misses a payment, goes over their credit limit, or breaches the agreement in any other way. This interest rate hike takes place in addition to the £12 fees that are charged. Again, no action appears to be planned by the regulator.