Bank Charges Case: The Devil's in the detail (Part Three) - The dust has settled, uneasy lie the banks.

Even the Solicitors' Journal yesterday commented that "This is not only a costly funeral for a high profile case, it will further erode the status of the OFT as an effective consumer champion while comforting large corporations that they can take on government bodies and win."

The Journal also went on to say: "Predictably perhaps, the outcome is a disappointing win on a technical point."

The Court indicated pretty clearly (for lawyers) that the OFT had simply argued (attacked, as they put it) their whole case based on the wording of one previously legally successful regulation, so confident were they from their experiences in the High Court and the Court of Appeal that this argument had hit home with the lower judiciary. The higher judiciary, as I said yesterday, were not empowered to 'pretend' that the eminent QC before them had argued on another regulation which they implied would have had much more legal legs.

What the justices suggested would have had so many legs the argument would have knocked them over was another regulation which concentrated on the fact that the ordinary consumer cannot possibly be in a free bargaining and negotiating position with a massive business: in this case a multi-national global bank. In other words, when it comes to the terms and conditions, the average consumer has to like it or lump it and (as the Justices said) have little choice of alternative terms and conditions from a competitor, because that other 'competitor' (I use the quotes advisedly) will also have the self-same terms. This clearly affects many more sectors than just Banking.

And you can't blame Europe for this one. The European Regulations at the heart of the Supreme Court Case yesterday were simply fall-back, fail safe, minimum regulations. The Justices indicated that they could have been considerably beefed up (as they had elsewhere by other EU nation states) had the government possessed the will to do so.

As I also said yesterday, the last few governments' regulatory regimes, under pressure from big business, simply left the consumer to be protected by the flimsiest of fall-back legal frameworks: minimal veils of protection that big businesses and their lawyers flicked aside with ease. These regulatory regimes failed the consumer. It is time for regime change.

The OFT failed spectacularly. I believe it is now time to disband it and replace it with a Consumer Protection Agency with full toothful powers to intervene vigorously in the market. It should (to coin a phrase) intervene before Breakfast, Dinner and Tea to prevent the vicious, predatory behaviour of the kind exhibited by all of the UK Big Banks in a this cartelised, concerted , cross-industry policy of charging for 'services'. It should intervene to prevent, for the good of the market itself (never mind the consumer), the kinds of lazy business models (not just in Banking) that fleece British consumers when big businesses can't be bothered actually to come up with competitive, innovative, market-empowering business models. They have brought it on themselves.

Small and Medium sized businesses in this country seem to me to operate in a completely different world to this country's PLCs and Global capital players. SMEs have to thrive through proper customer service and contact and using terms and conditions which help and serve both sides of the bargain. Otherwise customers go elsewhere. The markets they operate in are usually much more free and the forces they operate within are much more rigorous and, indeed, unforgiving in promoting a better deal for customers and businesses.

SMEs are much more responsive to the needs of the customer and the local economic community. The great free market libertarian thinker Adam Smith would simply not have recognised the kinds of practices and procedures operated by big business in this country today as having anything to do with a competitive, free and efficient market.

The Justices yesterday indicated that the way the British Banking system worked was through the process known as 'cross-subsidisation' where 70% of customers are subsidised by the other 30%. In this model the cost of the product or service is kept low (in the case of the banks, supposedly 'free') to a significant proportion (the majority) of customers by holding hostage the remainder who find themselves with no choice but to pay massive fees or a huge price for essentially the same product or service. It's like small car owners being charged £50 per litre for their petrol so that medium, family-sized and SUV car owners can get free petrol. The justices indicated that this angle would also have been a better angle for the OFT's QC to have argued. In effect they were writing the QC's next advice from counsel for them, to save time.

The actual regulation the OFT should have argued goes to the heart of the problem in the lack of balance in the bargaining relationships between the average consumer and the bigger businesses not just banking.

Here comes the legal science:

In The Unfair Terms in Consumer Contract Regulations 1999, Regulation 5 provides:

5. - (1) A contractual term which has not been individually negotiated shall be regarded as unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties' rights and obligations arising under the contract, to the detriment of the consumer.

(2) A term shall always be regarded as not having been individually negotiated where it has been drafted in advance and the consumer has therefore not been able to influence the substance of the term.

(3) Notwithstanding that a specific term or certain aspects of it in a contract has been individually negotiated, these Regulations shall apply to the rest of a contract if an overall assessment of it indicates that it is a pre-formulated standard contract.

(4) It shall be for any seller or supplier who claims that a term was individually negotiated to show that it was." [My emphasis]

Would you believe, with this particular arrow in the legal quiver available, the OFT's QC did not argue it before the highest court in the land!? The Supreme Court Justices said that it should have. The failure to do so was incompetence.

(I am, by the way, less convinced that the penalty charges argument had legs either, after all, having read throgh the judgement - it shouldn't go back to court.)

So, in terms of the case - the banks are in trouble, because all a claimant claiming back his or her charges now has to do is to amend any claims in court presently or start a case to include this regulation and then show that the contract term (not the charge) was, under this regulation in particular, unfair. They should also mention the cross-subsidy point as indicating unfairness too.

Bearing in mind the side comments by the Supreme Court Justices (technically known as Obiter Dicta) a district judge in a county court will have difficulty ignoring a claimant who argues the line of argument the Supreme Court Justices did!

Surely, in any event, we should allow a framework around certain legal issues to be regarded as being so important, and perhaps with the agreement of both sides, that they are able to go straight to the Supreme Court for determination without a two year wait and all the costs involved. Should we allow the OFT to clear up the mess and get the case quickly back into the Supreme Court so the Justices (as they seem itching to do) can actually properly clarify the position once and for all?

The banks and the consumer are back where they started 2 years ago. And as the Solicitors Journal said, the banks simply won on a technicality. They should not sleep easy, and extra time could be on the way.

John Clancy is a former Birmingham City Councillor, a former solicitor
and runs justliteracy.com & mediafuturesalert.com
(Hat tip to Big Red Bus on the Consumer Action Group website for the Solicitors' Journal quote.)

John Clancy is expressing a personal not a legal opinion and his opinions should not be regarded as legal advice upon which any person should rely.