Yesterday for the first time the handing down of a Supreme Court judgement was a major news event. The outcome of OFT -v- Abbey National & ors was eagerly awaited. Many bank customers had hoped for some good news and some cash back from their banks – always handy just before Christmas. Sadly, the Supreme Court appears to have played Scrooge or the Grinch, and in today’s press the Court is given a rough ride for seeming to side with the banks. This is slightly unfair, but as Bill Gates is often quoted as saying, “Life is not fair. Get used to it.”
Fairness was not, as many reports wrongly assume, the central issue for the Supreme Court. They did not rule that the banks’ charging mechanisms for unauthorised overdrafts were fair. Instead, the Supreme Court decided that the banks charges for unauthorised overdrafts (and other bank charges at issue) were part of the banks’ price and remuneration for providing retail banking services. On that analysis, given that Regulation 6(2)(b) of the Unfair Terms in Consumer Contracts Regulations 1999 (the “Unfair Terms Regulations”) states that the assessment of the fairness of a term in a contract “shall not relate . . .to the adequacy of the price or remuneration, as against the goods or services supplied in exchange”, it was clear that the Office of Fair Trading did not have jurisdiction to assess whether the banks’ unauthorised overdraft charges are fair using its powers under the Unfair Terms Regulations.
So how did this case reach the Supreme Court? A crude summary suggests that at High Court the overdraft charges were considered not to be “in exchange” for any service, so fell outside the scope of Regulation 6(2)(b). In the Court of Appeal, the charges were considered to be part of an overall package of services provided by the banks, but were considered to be “incidental or ancillary” and not part of the “core or essential bargain” between the banks and their customers. As “incidental or ancillary”, the charges were ruled not to be within the scope of Regulation 6(2)(b). This meant that the OFT had power to assess the fairness of the charges. Clearly, the banks thought otherwise and have been vindicated in their appeal to the highest court.
So is this the end of the battle for repayment of unauthorised overdraft charges? As the Supreme Court were at pains to make clear, they were only called upon to make a ruling upon a narrow point of law. It remains open for the OFT to consider if the terms governing the banks’ overdraft charges are unfair “if, contrary to the requirement of good faith, [they cause] a significant imbalance in the parties’ rights and obligations arising under the contract, to the detriment of the consumer” (Regulation 5(1)), as in almost all cases consumers accept banks’ standard terms and do not negotiate their retail banking services agreements.