On Thursday 24th April Justice Smith ruled in favour of the Office of Fair Trading (OFT) against the banks’ penalty charges. Although amid the publicity you could be forgiven for thinking a resolution is just around the corner, unfortunately this may not be the case.

What has the Judge Ruled on? 

The judge was asked only to consider whether the OFT is allowed to assess charges under the Unfair Terms in Consumer Contract Regulations 1999 (UTCCR). Justice Smith has not ruled on the legality of the charges. Mr Justice Smith, did confirmed though  what bank charges campaigners have been arguing for two years, that consumer contract regulations, known as ‘Unfair Terms in Consumer Contracts Regulations' do apply to bank charges, meaning "fairness" counts.

What does this mean?

This ruling allows the OFT to decide what to do about bank charges. Unfortunately the OFT has yet to complete its investigation, so we cannot be sure what they are considering and how heavily they will come down on the consumers side.

More Things to Consider

This is by no means an ‘out and out' victory for the consumer, despite all the headlines there are different elements of the case to consider.

Justice Smith surprisingly found that (with exception of a small number of terms) that the Banks contracts were indeed written in plain English. Justice Smith found in favour of the Banks that the charges were not disguised as a service and therefore not penalties.

Overall the most important ruling the OFT was looking for was on fairness which it got. We expect the banks to use any possible defence so there will more good and bad news to follow for all, how much of each and for who remains to be seen.

It may go to Appeal

Although the OFT may appeal Justice Smith's findings this is unlikely. It is widely accepted that the Banks will appeal any judgement particularly in today's economic climate. With many Banks scrambling for safety I would imagine paying out many hundreds of millions over the next year is a very low priority for the Banks top brass and leaves potentially hundreds of thousands of claimants in financial difficulty many of which had been pinning their own economic recovery on the return of their bank charges.

The Waiver is still in Place

Since July 2007 there has been a waiver imposed by the Financial Services Authority (FSA) allowing Banks to hold and refuse any bank charge complaints until the conclusion of the court case.

There are still certain circumstances if you feel you are in ‘financial difficulty' that the bank is required to look at your claim. The Banks are fairly strict on what they deem ‘Financial Difficulty'. Generally this only applies if your income is not enough to cover reasonable living expenses and afford your financial commitments such as utilities, rent and council tax when they are due or if you are struggling to pay your debts, for example you have mortgage arrears and lots of credit card debt that you cannot afford to pay back.

What is happening in the Courts?

With the deluge of claims swamping the County Courts, the FSA waiver was a welcomed respite giving the County Courts the excuse they needed to put on hold the majority of bank-charge cases, until after the Test Case has been resolved.

Although each individual court is allowed to make its own decision in relation to putting claims on hold, some courts are expected to allow claims to continue now particularly those in serious debt or financial difficulty.  This is positive albeit only for financially impaired.

What happens next?

There is a special ‘case management' meeting between all parties on 22nd May to state what they intend to do; appeal, pursue or come to an agreement.

If the case doesn't go to appeal or as expected the OFT eventually wins, it will be up to the OFT with the help of consumers to asses the charges and make a decision.

The Banks' in their defence have already stated that they believe their charges are fair and are adamant they will be victorious if the case is taken further. The irony is to assess the fairness of the charges the Banks will need to supply their internal costs, something that, until now they have refused as they do not wish their confidential commercial undertakings being made available to all.  In reality this once again casts a very murky shadow over the Banks particularly in the light of recent expert opinions and certain ‘whistleblower' programs detailing the true cost of administering the charges in question.

The FSA has stated the waiver will be in place until a conclusion of the case. This means that the neither The Financial Ombudsman, the Banks or the County Courts have to deal with any non financial hardship case until the case is resolved.

Should I still make a claim?

Yes! If you haven't already made a claim and you are considering it is important you act now. With in excess of 750,000 cases currently on hold the sooner you put your claim in the sooner it will be processed following a conclusion to the case.

 The statute of limitations states that you may only claim for 6 years of charges in England, Northern  Ireland and 5 years in Scotland. This case is likely to go on for many more months possibly a year so it is important to get your claim in now.

Watch this space for an update on or around the 22nd May! If you would like to receive the Wallet Doctor Newsletter with our weekly updates sign up here.

Ben Waite

Managing Director

Alliance & Mutual Bank Refunds

www.ambr.co.uk