Consumer Law: Fair Trade - Assignment Example

On 31 August 2007, the Office of Fair Trading filed a claim before the High Court on the application of the law in respect of un ised overdraft charges. The claim relate to the issue of whether the fairness test in the Unfair Terms in Consumer Contract Regulations (UTCCRs) applies to the relevant charges. The OFT is determining whether or not unauthorised overdraft charges are fair, based on its view that the fairness test does apply to them. On the other hand, the banks argue that the charges are not covered by the fairness test in the UTCCRs.1 The case stemmed from numerous complaints received by the County Courts and the Financial Ombudsman Service that these charges are unfair. While the banks do not accept that the unfairness rules of the Unfair Terms in Consumer Contract Regulations apply, the OFT argue that such rules apply. A swift determination of this issue will assist expeditiously resolve the fairness issue of these charges.2 The 1999 Regulations, implementing the Directive, revoked and replaced the Unfair Terms in Consumer Contract Regulations 1994. The 1999 Regulations apply in relation to terms in contracts concluded between a seller or a supplier and a consumer (Regulation 4(1)). Regulation 5(1) provides: "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." Regulation 5(5) provides that Schedule 2 to the 1999 Regulations contains an indicative and non-exhaustive list of the terms which may be regarded as unfair. Regulation 8(1) provides that an unfair term in a contract concluded with a consumer by a seller or supplier shall not be binding on the consumer. Regulation 8(2) provides that the contract shall continue to bind the parties if it is capable of continuing in existence without the unfair term. The only material exception to the applicability of the test of fairness set out in 1999 Regulations is contained in Regulation 6(2) relating to what are called, for short, "core terms": "In so far as it is in plain intelligible language, the assessment of fairness of a term shall not relate- (a) to the definition of the main subject matter of the contract, or (b) to the adequacy of the price or remuneration, as against the goods or services supplied in exchange". Banks enter into personal current account agreements with their customers who are consumers, containing the terms and conditions relating to the operation of those current accounts by such customers. In so far as any of these terms and charges are contained in documents which are described as notices to, guides to, or communications with, customers, they are nevertheless to be considered as terms of a contract between the Bank and its customers for the purposes of the 1999 Regulations, whether or not they are described as terms or as "policies of the bank" or as anything else. The Banks' current account agreements typically provide or provided for three types of payments to be demanded from customers in connection with unauthorised overdrafts: A fee charged by Banks: (a) when a customer seeks to operate his current account in a way that will result in the account being debited despite there being insufficient available funds to support the debit but the Bank nevertheless agrees to effect payment, causing the account to go into overdraft or further overdraft, or to exceed, or further exceed, an already agreed overdraft limit; when a customer moves into or is in an unauthorised overdrawn position within a specified period. A returned item fee, e.g. as in the previous case, a cheque is presented but in this case the Bank declines to authorise payment because there are insufficient funds, and the cheque has to be returned to the payee marked "R/D" or "RDPR" or "Effects uncleared". An increased rate of interest charged on unauthorised overdrafts granted in the circumstances set out above. The provisions in the current account agreements which entitle or historically entitled the Banks to demand the charges referred to above are referred to as "the Relevant Terms and Charges". The relevant agreements with the banks set out particulars of the Relevant Terms and Charges specifically the relevant increased rate of interest. The Current Terms Schedule of the banks referred to are: clauses entitling the relevant Bank to payment by a customer of an amount, whenever the customer's current account goes into, or remains in, unauthorised or unarranged overdraft (charging clause); clauses setting out the amount of the charge, i.e. the precise amount payable; clauses providing for charges whenever a customer issues a guaranteed cheque without sufficient funds to meet it, and the amount of such charges; clauses setting out the relevant Bank's entitlement to charges whenever a customer issues a payment instruction without sufficient funds to meet it and that instruction is returned unpaid, and the amount of such charges; and the applicable increased rate of interest on unauthorised overdrafts. The Historical Terms Schedule contains details of the following: clauses entitling the relevant Bank to payment by a customer of an amount, whenever the customer's current account goes into, or remains in, unauthorised or unarranged overdraft (charging clause); clauses setting out the amount of the charge, i.e. the precise amount payable pursuant; clauses providing for charges whenever a customer issues a guaranteed cheque without sufficient funds to meet it, and the amount of such charges; clauses setting out the relevant Bank's entitlement to charges whenever a customer issues a payment instruction without sufficient funds to meet it and that instruction is returned unpaid, and the amount of such charges; the applicable increased rate of interest on unauthorised overdrafts. Each of the Relevant Terms and Charges is not in plain intelligible language. Neither does it relate to the definition of the main subject matter of the contract; and does not relate to the adequacy of the price or remuneration, as against the goods or services supplied in exchange. Accordingly, insofar as these terms form part of the contract between the Banks and their respective customers who are consumers, such terms fall to be assessed for fairness under the 1999 Regulations. If any of the Banks' respective Relevant Terms and Charges are "unfair" within the meaning of the 1999 Regulation, the continued use by the Bank in question of such terms and charges in relation to its customers who are consumers could constitute a Community infringement under section 212 of the Act. Hence, such overdraft charges are clearly void under well established contract law principles and constitute unfair terms in consumer contracts Under the 1999 Regulations. In Gillin v Lloyds TSB Bank Plc, 2007 WL 1685290, a claimant bank customer (G) claimed repayment of charges applied to his bank account by the defendant bank (L). G had held a current account with L for a number of years. He had had various agreed overdraft limits from time to time. G accepted that he had occasionally exceeded those agreed overdraft limits and overdrawn his bank account when no overdraft limit was in place. L had imposed charges at various rates on those occasions. G contended that the numerous charges applied to his account constituted an unfair penalty under the Unfair Terms in Consumer Contracts Regulations and that the charges had not reflected any contractual breaches by him but were an unlawful extravagant penalty. In judging for defendant, the court ruled that there was a contract for the provision of banking services between G and L and L had from time to time notified G of its terms and conditions, including charges. There was no term in the contract that prohibited G from exceeding the periodically agreed limit to his overdraft and, accordingly, the charges imposed were for the provision of services and were not penalties for breach of contract. G had admitted never reading literature sent to him by L setting out its terms. Provided those terms were explained to a customer in "plain intelligible language" then, under reg. 6(2)(b) of the Regulations, a contractual term between a bank and customer could not be unfair merely because it imposed a price that the customer claimed was excessive. Further, under reg. 6(2) the court was not permitted to make any finding as to the fairness or otherwise of the charges imposed by L for the provision of its services3. [See Reclaiming bank charges. Oct. 1-4, Consumer Law Today (2007)] REFERENCES: Consumer Law Today (2007). Reclaiming bank charges. Oct. 1-4, 2007 Finance & Credit Law (2007). Legality of unauthorised overdraft charges. Oct, 3-4, 2007 Gillin v Lloyds TSB Bank Plc, 2007 WL 1685290 Regulation 4(1) Regulation 5(1) Regulation 5(5); Schedule 2 Regulation 8(1) Regulation 8(2) Regulations 1999 Unfair Terms in Consumer Contract Regulations 1994 Regulation 6(2) Read More