Banks Win Overdraft Charges Case?

A Supreme Court Judgement today has ruled in favour of banks for overdraft charges. The court has overturned earlier court rulings that allowed the Office of Fair Trading (OFT) to investigate the fairness of charges for unauthorised overdrafts.

Is this end end of the case?

Not necessarily - the OFT says it will make a formal announcement next month on what it plans to do next, which could be to devise another legal attack on the way banks levy overdraft fees. The Supreme Court said the OFT could have another go, if it wished, using another section of the Unfair Terms in Consumer Contracts Regulations. Regulation 5 talks of taking action if there is a significant imbalance in the parties rights and obligations arising under contract to the detriment of the consumer.

Lord Phillips added that this was not the end of the matter as the OFT could still try to scrutinise bank charges under other parts of the regulations. "This will not close the door on the OFT's investigations and may well not resolve the myriad cases that are currently stayed (put on hold) in which customers have challenged the relevant charges," he told the court.

What if I have already lodged my bank charges claim?

The judge did not give any explicit guidance as to how the judicial authorities should deal with the frozen cases.

Although the Financial Services Authority says banks must now start processing all the complaints that have been put on hold for the past two and a half years, BBC personal finance reporter Ian Pollock said "what is not clear yet is what happens to the refund claims that have been on hold since July 2007."

"They may stay that way if the OFT attacks bank charges another way, perhaps by triggering a full Competition Commission inquiry. Alternatively, the judicial authorities may simply invite local judges to dismiss the claims that have stacked up before them."

The problem isn't overdraft charges per se - it is the excessiveness of the charges and the fact than many customers can find huge charges added to their account for unwittingly going overdrawn. There are other bank charges to consider too, like bounced direct debit and bounced cheque charges.

Research by the OFT published in 2008 found banks earned around a third of their retail revenues from unarranged overdraft charges that were "difficult to understand, not transparent, and not subject to effective consumer control".

Phil Jones, from the consumers' association Which?, said that he was "utterly outraged" by the ruling. Martin Lewis, of Moneysavingexpert.com, said: "This may be a setback for reclaiming but it is not the end. The likelihood is the money is not coming back for anyone who has got claims on hold. There is still hope here, but we have got to do a lot of reading and a lot of legal work."

What will happen to bank charges now?

Some banks have started to compete on how customers are charged. Earlier this month, Santander said it was planning a new "fee-free" account available to its mortgage customers. This will not charge for unauthorised overdrafts or make a levy on payments that bounce or withdrawals overseas.

Prime Minister Gordon Brown said that government-supported banks - Northern Rock, HBOS and RBS - had recently been asked to review their overdraft charges so that they were fairer to customers. In October, RBS-NatWest broke ranks with the rest of the industry by slashing its overdraft charges.

What this doesn't resolve however, is the anger millions of customers feel for being ripped off in the past by charges of £30 or more for going overdrawn or having a direct debit or cheque bounce.

Bank have made billions from levying excessive banking charges on their customers and understandably, these customers want some (not all) of it back. It is unlikely that this is the end of the story - keep posted for more news in the up and coming months.

BBC News Story: http://news.bbc.co.uk/1/hi/business/8376906.stm

The Problem with Comparison Sites

A recent article on the BBC News website has highlighted some of the problems with comparison websites. These include:

1. Many of the comparison sites have commercial arrangements with the companies they feature. This means the customer is not getting impartial advice
2. The companies featured on the sites confuse customers by offering the cheapest prices but stripping out the protection to do so..."You can very quickly click through to that and not realise, and take out a policy. Then an incident occurs where you have to claim against the policy, and you find you've got very limited cover or you've perhaps got to pay the first £1,000 of the claim." The danger with price comparison sites is that you may get a great up front price but could end up with a worthless product or service
3. Using price comparison sites can dramatically increase the number of unwanted sales calls. “You enter the comparison site, and within a few minutes your phone is ringing and somebody is trying to flog you something you don't want - and that's not acceptable.” Lord Lipsey
   

Editor of Which? Money, Martyn Hocking, say "Don't only visit one site as a result of seeing the TV commercial."

"In reality, the prices vary significantly between each site - and no one site has all the best deals, so you really need to visit two or three sites" and he says that customers need to look beyond price when making decisions.

"If it's something like insurance, you need to look at how much cover you are getting, because it could be that the cheapest product is cheap, because it actually doesn't offer adequate cover."

The Life UK Financial Difference

1. A completely free membership that does not cost the member a penny more to get the advice from our key partner advisers than it does doing all research themselves
2. Completely independent whole market advice by specialists in the requested market, ensuring the member buys the right product or service at the right price every time
3. Most of the time, paperwork and hassle of researching the market and managing their finances is removed
4. The member does not have to remember when their policies come up for renewal - it is all done for them
   

The BBC Money programme "Price Comparison Sites: deal or no deal?" will be aired at 7.30pm on BBC 2 on Friday, 5 December.

To read the full BBC News article, please visit: http://news.bbc.co.uk/1/hi/business/7766798.stm.

Can You Claim to Have Your Debts Cleared?

From early 2008 onwards, there has been a large increase in the number of Claims Management Companies advertising that they may be able to help you clear your credit card and loan debts.

On What Grounds?

Any credit that is taken out in the UK for an amount up to £25,000 comes under a law known as the Consumer Credit Act (CCA). It used to be called the '1974 Consumer Credit Act', but was updated late in 2006 to the '2006 Consumer Credit Act'.

The CCA was created to protect consumers and provides comprehensive detail on what information a lender must include in their contract with a borrower. The 1974 Consumer Credit Act includes what are called 'prescribed terms' which a lender must include when creating a contract with a borrower. If any of these terms are breached, it could render a contract (agreement) unenforceable.

Although the CCA was created to protect consumers from unscrupulous lenders, it has become apparent that many mainstream lenders have fallen foul of the requirements and so some of their credit agreements are unenforceable.

What are the Criteria for Making a Claim?

It is difficult to ascertain whether a claim can be made on a particular contract until the original agreement has been checked (audited). There is however one key date which will have a big impact on whether you are likely to have a potential claim or not: 6th April 2007.

For agreements made on or after 6 April 2007 the court now has discretion under the Consumer Credit Act 2006 to enforce an agreement which does not comply with the 1974 Act’s requirements. In exercising its discretion, the court must balance the prejudice that would be suffered by a borrower if the court decided to enforce the agreement, against the prejudice that would be suffered by a lender if the court decided not to enforce the agreement.

Is it Worth Making a Claim?

Firstly, making a claim under the CCA is not a quick-fix solution for someone who is struggling to pay their debts. This is because the process can take 6 - 12 months (sometimes even longer) and there is no guarantee that a claim taken on by a Claims Management Company will be successful.

If you are struggling to pay credit card and/or loan payments, then you should consider seeking debt advice. The solution could be a Debt Management Programme (DMP) or even an Individual Voluntary Arrangement (IVA). A DMP is an informal agreement that is arranged by a debt solutions company between you and your creditors.

With a DMP, although your creditors may record late payments on your credit rating, the benefits are that any interest will usually be frozen and your debt is spread over a longer period of time, thus reducing your monthly payments into something that is more affordable. A debt solutions company usually charge a management fee of around 15% of your monthly payments, which is still a good deal if you can get the interest frozen and because a DMP is not a formal legal agreement, it is flexible.

An IVA is a formal legal agreement under the 1986 Insolvency Act between you and your creditors and will be arranged by a legal practitioner on your behalf. The creditors will accept an amount from the debtor that is less than the total amount owing and has the potential to reduce payments by up to 70% (payment is calculated on disposable income before unsecured debt payments).

With an IVA, interest is always frozen and the debtor must make the arranged payments for a term which is usually 60 months. As long as the arranged payments are made each month, the creditors cannot take action. However, if the debtor stops paying the payments, they could be faced with an order for bankruptcy.

If you would still like to make a claim and you're not already in an IVA, then if you have any finance arrangements under £25,000 that were taken out before 6th April 2007 you may want to contact a Claims Management Company.

Who Should I Use to Help Me Make a Claim?

If you have decided you want to go ahead and make a claim to clear any of your debts, then it's important that you select a reputable Claims Management Company who have proven results and who don't charge excessive fees. Things to look out for are:

• Only use a company that is regulated by the Ministry of Justice (MOJ). They should have a registration number which you should be able to check on the Ministry of Justice Website
• Don't pay excessive upfront fees - some companies charge £500 or more on the front-end, even before they take on your claim
• No case is guaranteed to be successful, therefore make sure that any upfront fees you do pay are refundable should your case not progress, or if it is unsuccessful
• Make sure that the Claims Management Company doesn't charge any back end fees. Some companies charge clients 25% or more on the back end, which means that you will have to pay them a potentially large amount once the case has been resolved
• Ask the company for proof of success. Do they have genuine, qualified solicitors working on behalf of clients, or inexperienced legal executives? Do they have appropriate insurance in place such as After the Event (ATE) Insurance?

As with any new industry, there have been teething problems for the Consumer Claims Management Industry and many unscrupulous companies have emerged trying to make quick money.

If you are interested in making a claim, please contact us and we can refer you to a reputable company who fulfill all the above criteria.