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26 February 2009

Banks lose in Court of Appeal decision

The Court of Appeal has finally handed down its judgment in the test case and it has rejected the banks' appeal against the High Court ruling. This confirms that the OFT can investigate whether or not the banks' charges for unauthorised overdrafts, returned direct debits etc. are fair. Unfortunately, this is not the end of the matter.

First, the banks could apply to the House of Lords to have the decision overturned. The Court of Appeal refused leave to appeal, but the banks can go directly to the House of Lords. I understand that they would have to apply within 2 weeks, then the House of Lords has another 6 weeks within which to decide whether or not to hear an appeal. Given past form, nobody involved in these matters ever makes decisions ahead of schedule, so it will probably be the end of April before we hear what is decided.

Furthermore, because the OFT has not yet actually said what they think would be fair charges, then we still have to wait until they come out with figures. Then, undoubtedly, the banks will not accept whatever the OFT suggests and the issue could go back to the Courts to resolve what would be fair. There is little doubt that the OFT is deliberately spinning the whole issue out as long as possible, presumably because it is under pressure from the government – with banks' finances in such a dire state, the last thing the government wants is for the banks to have to pay out 10-20 billion pounds to its customers.

The Deputy Head of Civil Justice has published a letter that he has sent to the local courts around the country. It was he who first issued a note back in August 2007 advising courts that they could put claims on stay. The text of that note was never published – I asked to see a copy of it, but the request was refused. I think that this time he is conscious of the fact that another secret note would not look too good in what is supposed to be a democracy with open justice. Hence, his guidance was issued at the same time as the Court of Appeal judgment. Whilst, in theory, it is up to individual County Court judges to decide whether or not to lift stays on claims, in practice they are all going to follow the "guidance" from on high. This is the text of the note:

“As you may already know, the Court of Appeal has dismissed the appeal in the Bank Charges litigation, holding that the OFT is entitled to investigate the fairness of the terms which provide for the payment of charges for unauthorised overdrawing etc. There was no appeal on the penalty issue on which the Banks won below.

Permission to appeal to the House of Lords has been refused, but the matter does not end there, both because the Banks may petition their Lordships for permission to appeal and because unless the decision of the Court of Appeal is overturned, the OFT will now have to complete its investigation in order to determine whether the charges are unfair or not.

As you will appreciate, apart from knocking out the penalty argument, the proceedings have not yet produced a final answer one way or the other to the claims pending in your courts. You may be faced with applications to lift the stays which are currently in place. Circumstances may differ, but you may think that, insofar as claims turn on whether the terms in question are unfair under the Regulations and therefore unenforceable, there is much to be said for continuing the existing stays pending a decision by the House of Lords and/or the outcome of the investigation by the OFT.”

In other words, keep all cases on stay until the OFT completes its investigation and makes a decision on what actually would be a fair charging regime.

I would estimate that this mess is not going to be resolved this side of the next general election some time in 2010.

See BBC story covering Appeal Court decision.

Published and promoted by Bob Egerton, TR2 4RS