Test Case - Unauthorised overdraft charges - update

Background

In conjunction with the Financial Services Authority ("FSA") and the Office of Fair Trading a number of current account providers submitted a ‘test’ case during July 2007, approaching the High Court for a ruling on the complex issue of unauthorised overdraft fees. Alliance & Leicester plc is not one of the Banks involved in the test case.

Customer complaints relating to unauthorised overdraft charges will be placed on hold, as agreed with the Financial Ombudsman Service and the Financial Services Authority. The Banks will ask the County Courts in England, Wales and Northern Ireland and the Sheriff Court in Scotland to keep cases relating to unauthorised overdraft charges on hold until the test case process is concluded.

Please refer to the British Bankers' Association (BBA) or the Financial Services Authority websites for further information. We will continue to update our website as more guidance becomes available.

Update 8 October 2008

In this latest stage of the test case the High Court has handed down its judgment on the banks historic terms and conditions. The judgment related to whether bank’s historic terms & conditions could be:-

1) considered as penalties and
2) could be assessed as being fair by the Office of Fair Trading.

The judge found that most of the banks historic terms & conditions could not be considered as penalties although he has asked for further information from a number of banks. However it was also found that the terms & conditions could be assessed for fairness by the Office of Fair Trading.

The banks have appealed the judgment on whether terms & conditions can be considered for fairness and the next hearing began on 28 October 2008.

In the meanwhile complaints over the level, fairness or legality of fees for unauthorised overdraft fees will remain on hold under the terms of the FSA’s waiver until the outcome of the test case is known.

Update 25 April 2008

The first stage of the test case was heard by the Court between 16 January and 8 February 2008 and dealt with certain preliminary issues of legal principle. On 24 April 2008, the Court issued its judgement on the first stage of the test case, which dealt with preliminary issues of legal principle. Further Court hearings will be required before the test case process is concluded.

The judge has decided that the Office of Fair Trading ("OFT") can apply consumer contract regulations to decide if bank overdraft charges are fair or not.

The judge has however stressed that his decision today did not mean that the terms imposed on customers by the banks were unfair, or that they were not binding on consumers. The banks individual terms will be reviewed in further hearings.

The full judgement is complex, and like the banks directly involved in the test case, we will be studying the ruling in more detail.

Update 24 May 2008

As part of the test case process, a Case Management Conference was held on 22 & 23 May 2008. Three main issues were discussed: the scope of the next stage of the test case, what issues would be appealed and future case management. The judge granted the banks permission to appeal his decision on whether the terms could be assessed for fairness.

Update 21 July 2008

The next stage of the test case was held from 7-9 July 2008. The hearing was used to address three main things: whether historic & basic terms could be assessed for fairness, whether historic & basic terms are capable of being penalties at common law and next steps. The judge will announce his decision shortly.

The FSA issued a new waiver for complaints about unauthorised overdraft charges, allowing banks and building societies to put these complaints on hold. The new waiver takes effect from 27 July 2008 and is valid for a period of six months. The waiver will be reviewed early in 2009.

More Information

What does it mean for customers?

What if I have a complaint outstanding?

The complaint will remain with Alliance & Leicester and will not be dealt with until the test case is resolved. Complaints will be dealt with as quickly as possible once the test case is concluded.

What if I wish to complain from today?

Customers can still complain now or they can wait until the full test case process is complete - they will not be disadvantaged. The complaint will be recorded by us and will be dealt with as quickly as possible once the test case is concluded. The FSA still require any new complaints to be promptly acknowledged.

What if Scotland is the most likely jurisdiction?

Customers may choose to take their complaint to the FOS or the courts in Scotland. The right to refer the complaint to the FOS will not be affected. However, if customers want to bring a claim to the courts in Scotland, the timing of when the claim is raised may be important. They are advised to seek independent advice on filing a claim now to protect their rights (although a court fee will be payable).

What if I have already had a settlement and think they may want it reviewed?

A full and final settlement stands. In some exceptional circumstances the complaint can be reviewed. Customers can still complain about new charges incurred.

What if have received a final response from us which does not include an offer?

Customers still have the option of complaining to FOS. However, it is unlikely that the FOS will consider any complaints about charges for unauthorised overdrafts until complete resolution of the test case. Other than where the customer claims financial hardship – see below.

What if I am in very difficult financial circumstances? – (hardship cases)

Alliance & Leicester will continue to review all cases where hardship is claimed during the waiver period. Where a customer has claimed hardship and is not happy with our response they are still entitled to be referred to, and dealt with by, the FOS. See the Banking Code for further guidance.

What if I wish to complain to Alliance & Leicester about other issues?

Customers can continue to use the existing complaints process to seek redress about other financial matters, such as insurance, mortgages and current accounts. However, if their complaint relates to the level, fairness or unlawfulness of unauthorised overdraft charges, that element of the complaint will be registered but not dealt with until a resolution has been achieved.

Can I complain to the Financial Ombudsman Service about my bank charges?

The Financial Ombudsman Service (FOS) has decided not to review complaints while the test case is running. If you do complain to FOS, you will receive a letter explaining that.

I have already accepted an offer from you. Will my claim be revisited?

If you have accepted a 'full and final settlement', we believe it unlikely you would be awarded a further sum even if the test case indicates a potentially larger amount. However, this does not preclude you from asking for repayment of any new charges incurred if the courts find they are unlawful.

How long will the test case take?

The Banks are keen that all outstanding issues should be resolved as expeditiously as possible.

What if I have a case on hold at the county court?

The judge indicated that these cases should continue to be put on hold at least until the next step of the test case process and probably beyond that.

Where can I find out more?

We will post updates on the test case on our website and in accordance with the FSA's complaint handling rules, we will write out to customers to keep them advised of progress on their complaint.

Alternatively, you can find more information on the 'test case' through the following links:

The Financial Services Authority:
www.fsa.gov.uk

The Office of Fair Trading:
www.oft.gov.uk

The Office of Fair Trading latest update:
www.oft.gov.uk/update

The Financial Ombudsman Service:
www.financial-ombudsman.org.uk

British Bankers Association:
www.bba.org.uk

The Banking Code:
www.bankingcode.org.uk