nick’s (n)-line life

Like many people, I own a number of credit cards which I use on a regular basis. Ordinarily I pay these bills in full each month to avoid the high interest that card providers charge and just use them for convenience and to earn cash-back. Unfortunately, back in February I made the mistake of failing to ensure that sufficient funds were in my account and a direct debit bounced: whoops… then the fun started and the letters began coming in:

A bit of extra interest on my account, right? No such luck.the first letter was from my card provider (the infamously troublesome Capital One) who promptly fined me £20; irritating but bearable. I was far less impressed, however, when a second letter from my bank arrived a few days later fining me another £30! Thank you very much Intelligent Finance (a.k.a. Halifax). Now for some reason the banks have taken it upon themselves to decide that this £50 (aprox US$100) penalty is a fair and proportionate way of enforcing their oppressive commcercial will. I’m clearly a “naughty” custmer (or a student) and thus I’ve been earmarkerd as someone who can’t or won’t take action against this penalty charge.

So… I’m going to share some of my angst and, more constructivly, I’m going to point out the light at the end of the tunnel and offer some advice for other customers in this position (and yes, target some abuse at the banks). Law students seem to have a certain predisposition which lends itself to these kind of arguments and, like any good law student wronged, I began researching the possible legal remedies which might assist me in recouping these my hard won pennies. Fortunately for me, these bank charges have been under under heavy attack for some time now, and it looks as if I’m now in a position to take advantage of this.

In 2005 Stephen Hone, a Plymouth law student (yes another one!) won several thousand pounds following a default judgment against Abbey in the county court (although this was later overturned on overturned on procedural groundsand then settles) who went on to set up the Bank Action Group to combat these potentially illegal fines. The reason this decision is significant is the in the past the banks have always paid off anyone who got to the litigation stage rather than risk having a judgment made against them. In Hone’s case Abbey slipped up and didn’t appear in court. The resulting media-storm showed that bank customers all over the country were furious at the charges especially when it became common knowledge that the banks were paying off those with the inclination to take action (thus preventing the flood-gates from opening).

Last year the banks made £3bn profit from the fees imposed by unauthorised overdraft fines alone contributing to their record profits of £33 billion (see the BBC’s How much do banks make our of me?) with HSBC alone making £11.9bn. Ouch! We simply should not put up with these unfair penalty fines, especially as they are deliberatly targeted at those who are least able to pay for them. In 2005 the chairman of the Royal Bank of Scotland chairman stated that:

The [penalty] costs are going to pay for all the people we have who pursue debt, collect debt, speak to customers and chase payments [...] The way these charges are arrived at is by taking these total costs and making some assumptions about the volume that is going to come through to arrive at the individual charges.

So the banks even admit that these charges are unfair and discriminatory! In many was modern life necessitates banks accounts, for example many employers will only pay wages by bank transfer and, to me, these charges are a form of exclusion only marginly different from the banks attempting to close the accounts of unprofitable customers. Today’s banks perform a quasi-public role and greater regulation is needed to control abuse of this position.

Anyway, the “light at the end of the tunnel” I mentioned is that on 5th April 2006 the Office of Fair Trading wrapped up a two year investigation and declared excessive default charges unlawful. As far as they are concerned any charge over £12 is “unfair” (and thus illegal) in all but the most exceptional circumstances. Furthurmore there is not justification for an automatic £12 fine, the banks have to justify it in terms of the loss they are suffering or a service they are offering. The full text of the OFT report (and a 3 page summary) is available on their website.

In light of this, Intelligent Finance’s recent letter, rejecting my request for a refund and telling me to go screw myself [ although I'm paraphrasing a little ] doesn’t seem so intelligent now, does it? CapitalOne’s decision to ignore my letter might well have been better advised, I’m currently looking foward to seeing their reaction to a pleasently-worded write arriving on their foorstep once I initate the small claims procedure in the County Court [yes I know they're called claims forms post-1998, but "serving a write" just sound so much better than "giving someone a claim-form" - at least in HK they didn't impliment the Civil Procedure Reforms :) ]

Getting back to the case in point, the Guardian has been very vocal in condemning the bank charges, accusing them of going beyond mere profitering. The banks, assuming the OFT report remains in place, face estimated claims of £1-£2bn. The legal arguments put forward are twofold. Firstly this charges may well be classified as a penalty clauses (vis liquidated damages) and thus be struck out of the contract. However, it is possible to get around such provisions by specifying an unauthorised overdraft as permissible under a contract but levying a charge for this as a service (rather than defining it as a breach of contract) although they might have some difficulty in justifying this in court.

The second argument is that the rules breach the Unfair Contract Terms Regulations 1999 (SI. 1999/2083). (summary here).

Indicative and non-exhaustive list of terms which may be regarded as unfair - 1. Terms which have the object of effect of - ( e ) requiring any consumer who fails his obligation to pay a disproportionately high sum in compensation’

It should be stressed that the OFT has not made an enforcable legal decision but the OFT has set a deadline of the 31st May for the banks to respoind to the criticicism and has not ruled out legal action if the banks fail to comply. This doesn’t prevent any individual from taking legal action against the banks, which is what I will be doing once my Exams are safely out of the way and I have a bit more time. Customers will be able to claim for any charges incurred in the last 6 years. As you might expect the OFT announcement was met with an immediate, and sharp, drop in the value of shares in all of the major UK banks - my heart bleeds for them in ways I can hardly describe.

The banks have responded to the whole situation by threatening to remove free banking. In my opinion this is a bluff. Consumers are never going to accept the re-imposition of charges by the banks, and if they try there will be mass-migration to whichever institutions decline to charge fees. Even if they did bank do bring back charges this would at least be fairer, as the costs of personal banking would be shared between all customers rather than forcing those least able to pay the penalties to bear the cost for eveyone as the current system does. One should note that these people are unlikely to defend their legal positions, are unable to change banks, and but-for the charges, are unlikely to generate the bank any profit.

The OFT’s report is a great step forward and those who continue to argue that the current charges are a good thing either:

1. have a personal interest in the banks continuing to take this money
2. are ignorant of the fact that the poorest members of society are paying the costs of the richest
3. are unconcerned that the poorest members of society are paying the costs of the richest (i.e. they vote for the conservative party and say things like “well it’s their fault anyway” - I withold judgment on such persons).

All of this leaves me in a reasonably good mood, Capital One still haven’t responded to my letter, and Intelligent Finance (Halifax) have refused to return my money. However, I’ve been itching to have a go at using the small claims procedure for some time and as the costs are only £16 (see the N.I. Consumer Council advice) I’ll have the fun of litigating the thieving banks to get my money back; everyone need a hobby :) Other useful advice can be found at two pro-consumer groups: Bank-Charge Hell and Bank Action Group a site set up to assist those looking to recover these illegal charges. A really excellent 2 page summary to using the small claims court is available here.

Update: 3rd May 2006
Intelligent finance have now relented and refunded my money - it’s amazing what a deadline prior to litigation does to improve the willingness of a company to negotiate…

Anyone else in a similar position is encouraged to do likewise (and I just need to keep working on Capital One who will be receiving their own deadline shortly).

Update: 8th May 2006
Capital One have given me a partial refund charging only £12 instead of £20. The implication from this is that they recognise the charge is unfair. They’ve also tried to tell me that the OFT says that £12 is a “fair charge” which wasn’t what they said at all.

An unfair term is actually struck out of the contract rather than adjusted so it’s likely I’ll get the rest back soon.

Update:
Indeed I did eventually get this money refunded in full. Yay, job well done…