NIL DESPERANDUM
The first major judgment of the newly created Supreme Court is, on any view, a major disappointment. I refer to the long running saga of bank charges, and whether or not the banks can impose these charges with impunity without having to justify them to anybody, least of all their long suffering customers.
More than two years ago, the Office of Fair Trading sought a ruling from the High Court that it was entitled to regulate banking practices in the interests of consumers. After all, the OFT had been created by statute specifically to protect consumers against the ‘big guns’ where the two were not competing on a level playing field. The desire of the OFT to regulate banks arose because the banks consistently raised their charges and persistently refused to justify them.
The argument over bank charges focused in the main on ‘one off’ charges for returning cheques or direct debits and the like, where there were insufficient funds in the customer’s account. Over a relatively short period of time, when credit was running rampant, these charges crept up, almost unnoticed, from £12, then £24, and finally, when the OFT sought to intervene, £36. Nobody, including the OFT, argued against a charge being imposed, but everybody except the banks believed it was only fair and proper for the banks to justify these charges. The OFT stated their case with commendable brevity. If the actual cost to the banks was in the region of £2 - £3 per transaction, this should be the charge, and not some grossly inflated figure to fill their pension pots.
The High Court was sympathetic to the OFT, ruling that it could indeed ‘regulate’ banking practices. Millions of long suffering customers greeted the ruling with a mixture of relief and elation, but the banks, whose sense of fair play had evaporated decades ago, pressed on to the Court of Appeal, regardless of the expense. A year or so later, the Court of Appeal upheld the ruling of the High Court, and that mixture of relief and elation began to take a firm hold. At long last, those millions of long suffering customers dared to hope that the banks would be held accountable, but it proved to be a false dawn.
Another year slipped by before the Supreme Court ruling, which ignored, and therefore overturned, the rulings of the High Court and the Court of Appeal. A rash decision, and downright wrong.
It is perhaps worth setting their ruling into context. Since the OFT started its test case in 2007, there has been a global banking crisis. The two main UK victims, or culprits if we accept that this was a crisis of their own making, were the Royal Bank of Scotland and Lloyds TSB, both of whom were the high profile targets of the OFT. Huge sums of taxpayers’ money were thrown at these banks, with RBS now 70% owned by the Government, and Lloyds TSB 43%. In theory, these banks are expected to repay the billions lent to them in the fullness of time, presumably when pigs have learned to fly.
Fast forward to barely two weeks ago, when the news leaked out that these same two banks had received further ‘emergency’ funding from the taxpayer, in the region of £60 billion over the summer, and which was not disclosed at the time for fear of undermining confidence in the banking system. What confidence, I ask rhetorically?
Fast forward again to the week before the Supreme Court ruling. The press and media to a man and woman were convinced that the banks would lose, yet again, as they had in the High Court and the Court of Appeal. The cost to the banks in repayment terms of these excessive charges was estimated in the region of £6 billion. The cost to the banks in defending the test case brought by the OFT is in the region of £20 million, but this is small beer in the overall scheme of things.
Call me cynical if you will, but had the Supreme Court ruling gone against the banks, which everybody assumed it would, they, and by inference the taxpayer, would have had to find an additional £6 billion at a time when they are still being propped up, and where confidence in the banking system remains wafer thin. The Supreme Court ruling has thrown a life line to the banks. Coincidence?
On a more mundane level, the Supreme Court ruling does not shut out the OFT altogether. It is still possible that the banks can be challenged under different regulations in the Unfair Terms in Consumer Contracts Regulations 1999, and I hope they will. But the banks, having tasted blood, are unlikely to accept any challenge to their malpractices, and so we start the danse macabre all over again. Such a pity that the Supreme Court did not apply the dictum of the late and great Lord Denning: “That may be the law, but is it fair?”
Nil desperandum is my motto, perhaps more in hope than expectation. Whilst the OFT has been kicked into the long grass to lick its wounds, where is the Competition Commission when we need it? At the moment, it’s about to draft a consultation paper on the Groceries Controlled Land Order, a matter no doubt of national importance, but once that’s done and dusted, I urge the Commission to investigate the collective malpractices of the banks. These malpractices have all the hallmarks of a cartel, which should be illegal, although I doubt if the Supreme Court would agree. The Commission’s remit is to ensure that there is free and fair competition in the high street, and a proper choice for customers in the banking sector.
There’s a bad smell in the corridors of power. Time to throw open the window and let in a blast of much needed fresh air.
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