Bank Charges The Supreme Court Judgment

In July 2009 I posted an article discussing the progression of a test case brought by the Office of Fair Trading (OFT) to establish whether or not bank charges imposed by banks upon customers who exceed their authorised overdraft limits were fairly imposed. The basis of the test case was whether or not the OFT does have the power to decide whether bank charges are fair or not.

Both the High Court and the Court of Appeal ruled that the OFT did have the power to decide whether these bank charges were fair. Clearly the OFT took the view that the terms were unfair as they had not been individually negotiated and caused a significant imbalance in the parties' rights and obligations under the contract to the detriment of the consumer.

Of critical importance in this matter is whether the term relates to the main subject matter of the contract or is merely ancillary. The Unfair Contract Terms and Consumer Contracts Regulations 1999 clearly states that assessment of fairness shall not relate to the definitive of the main subject matter of the contract.

The question before the Supreme Court (which was actually the House of Lords at the time of hearing in June 2009) was whether, as a matter of law, the fairness of bank charges levied on personal current account customers in respect of unauthorised overdrafts can be challenged by the Office of Fair Trading as excessive in relation to the services supplied to the customers. The main question was whether the terms relating to the payment of charges for unauthorised overdrafts were merely ancillary to the contract or whether they relate to the main subject matter of the contract. The decision on whether the terms are ancillary or part of the main subject matter has a bearing on whether or not the Unfair Contract Terms and Consumer Contracts Regulations 1999 actually apply.

If the Supreme Court were to find that the overdraft charges related to the main subject matter of the contract, then the OFT would not have the power to assess whether or not they were fair. The Supreme Court, therefore, was not considering whether or not the terms which permitted the bank to charge for unauthorised overdrafts were fair, but effectively whether the OFT can decide whether the terms are fair..

Similar questions have been put before the Courts of other European States. The Unfair Contract Terms and Consumer Contracts Regulations 1999 were implemented in the United Kingdom in order to bring national law in line with the European Council Directive on Unfair Terms on Consumer Contracts of 1993. As this directive is required to be transposed into the national law of each country of the European Community, there is a wide range of interpretation and commentary throughout Europe on these provisions. Each country is permitted to decide how best to implement the provisions, so our European neighbours will interpret them in a slightly different way, and the European Court of Justice has not yet ruled on the matter. The Supreme Court had to decide on the basis of the laws of England and Wales.

In this instance the Supreme Court ruled that the bank charges levied on personal account customers constitute parts of the price or remuneration for the banking services provided. As this was a primary element of the contract and as the terms of the charges were given in intelligible language no assessment under the Unfair Terms in Consumer Contracts Regulations of the fairness of those terms can be carried out. In practice this means that the OFT will not be able to assert whether or not the charges for unauthorised overdrafts are unfair because they constitute one of the core terms of the agreement.

The Supreme Court was, however, careful to explain that this is not an end to the matter. The OFT will still be able to attack the terms but will not be able to attack them on the basis that the charges are excessive by comparison with the services that they provide. The Court has therefore suggested that this avenue of attack is closed to the OFT. However, another avenue of attack is available. Therefore, we have not heard the end of this matter. The OFT has not yet decided on its next plan of attack, but it's press release of 20 November 2009 indicates that they do not intend to let the matter lie and will be seeking to progress the matter either through negotiations with banks, consumer organisations or the Financial Services Authority/Government following the Supreme Court Judgment.

25 JANUARY 2010

For further information on Linder Myers expertise in dealing with the issues raised in this article please contact:

GREG MOLYNEUX, SOLICITOR
COMMERCIAL LITIGATION DEPT
0161 837 6819
greg.molyneux@lindermyers.co.uk