Answers to questions on bank charges

Q: What is happening?
A: On 27 July 2007, the Office of Fair Trading (OFT), Lloyds TSB, six other UK banks and a building society started a court case to decide on the legality of unplanned overdraft charges. Together, these banks and the building society provide more than 90% of current accounts in the UK.

The first stage of the test case started on Thursday, 17 January 2008 and finished on Friday, 8 February 2008.  This hearing focused on the preliminary legal issues which included whether the Unfair Terms in Consumer Contracts Regulations apply to unplanned overdraft charges and whether unplanned overdraft charges can be penalties.

Today [24 April 2008] the judge delivered his judgment on the first stage of the test case. The judge decided (subject to appeals) that our current terms and conditions:

• Are not unenforceable penalties.
• Are assessable for fairness under Unfair Terms in Consumer Contracts Regulations 1999 (“UTCCRs”).

While the judge said our current charges are assessable for fairness, he said that whether our charges are fair has not been determined by the court. This will be determined by a later court hearing.

The judge also made the following findings:

• Our current terms and conditions are in “plain intelligible language”; and
• Unplanned overdrafts are one of the essential services which we provide to our current account customers.

We are pleased that the judge agreed that our current charges are not unenforceable penalties. We believe that the same analysis will apply to charges under our historic terms.

Q: What happens next?
A: Further hearings will now be required so that the court can consider our historic terms and the issue of fairness. We believe that our charges are fair and that the charges will be upheld by the Court at this next stage of the test case.

We are keen to resolve the legal issues concerning unplanned overdraft charges to provide clarity for everyone. The judgment illustrates how complex those issues are. The Banks and the OFT agreed that the case should move forward as quickly as possible and this has been achieved with assistance from the Court. We expect that the case will continue to progress as quickly as possible and will work with the OFT to achieve that.

The timetable for the next steps in the test case will be decided at a hearing on 22nd May 2008. By the time of that hearing, the Banks and the OFT will each have to decide whether they wish to appeal any aspects of the judgment.

As previously agreed with the Financial Ombudsman Service and FSA, customer complaints relating to unplanned overdraft charges will remain on hold. We will continue to ask County and Sheriff Courts to keep cases relating to unplanned overdraft charges on hold until the test case process is concluded.

We will continue to post updates on our website to keep you informed of progress on the test case as this is likely to run on for at least a year.

Q: I have read in the papers that the banks have lost – is this true?
A: No – it’s more complicated than that. The judge has ruled that unauthorised overdraft charges are not penalty charges, but they are assessable for fairness under the Unfair Terms in Consumer Contracts regulations. He also concluded that this did not mean that our charges were unfair – this will be determined by the court in a subsequent hearing.

Q: What will happen to customer complaints about unauthorised overdraft charges?
A: Lloyds TSB will continue to suspend dealing with or resolving customer complaints about unauthorised overdraft charges while the test case is running. If you do complain about your unauthorised overdraft charges, we will write to tell you that we have received your complaint and that we will record it on your file.  When a final decision is reached in the test case,, we will contact you as soon as possible to tell you how we will resolve your complaint. We will apply the decision in the court case to all complaints we receive. A final decision will not be reached until the court decides whether or not our charges are fair. That issue has not been determined in the first stage of the test case.

Q: Why are the banks allowed to stop dealing with unauthorised overdraft charge complaints during the test case?
A: We applied to the Financial Services Authority (FSA) for a suspension of the normal timetable for dealing with unauthorised overdraft charge complaints.  The FSA decided that in the circumstances, it was appropriate to grant us a suspension of our obligations under the FSA's complaint handling rules whilst we seek legal certainty on this issue. The suspension is subject to a series of conditions designed to protect customers' rights. You can read the form of the FSA suspension (direction) here: www.fsa.gov.uk.

Q: I’ve recently requested copy statements as the start of making a complaint about bank charges. Can I still make a complaint?
A: We’re always happy to send copy statements on payment of our service fee. If you have requested them they should be sent to you within 40 days of payment of this fee. However, you should note that if you then write to make a complaint about your bank charges this will be treated as set out above.

Q: Can I make a court claim for a refund during the test case?
A: Yes, but we will apply to the court to put your case on hold while the test case is running.  This is because the issues being raised in customer complaints about unauthorised overdraft charges are being considered in the test case.

Q: Can I complain to the Financial Ombudsman Service about my bank charges?
A: The Financial Ombudsman Service (FOS) has decided not to review complaints about unauthorised overdraft charges while the test case is running.  If you do complain to FOS, you will receive a letter explaining this and letting you know what will happen.

Q: What if I have already been made an offer?
A: We will stand by any offer to settle a complaint or court claim that we have already made to our customers.  If you have received an offer to settle from us which is still outstanding we will be writing to you again shortly. Our letter will explain that customers have two months to decide whether to refuse our offer and wait for the decision in the test case.  If you do choose to refuse an offer, and return the settlement amount to us, your complaint will be held and recorded by us until there is a final decision in the test case.  We will then contact you again as soon as possible to finally resolve your complaint.

Q: I have already accepted an offer from you.  Will my complaint be revisited?
A: If we have made a 'full and final settlement' which you have accepted, we believe it unlikely you would be awarded a further sum even if the test case indicates you could have claimed a potentially larger amount. However, accepting any such settlement does not stop you from asking for repayment on any further new charges incurred if the court eventually finds they are unfair.

Q: You’ve rejected my complaint, what can I do now?
A: You may wish to refer your complaint to the Financial Ombudsman Service. However as set out above, the Financial Ombudsman Service (FOS) has decided not to review complaints about unauthorised overdraft charges while the test case is running.  If you do complain to FOS, you will receive a letter explaining this.

In addition, you can also make a court claim for a refund during the test case. However we will be applying to the court to put your case on hold while the test case is running.  This is because the issues being raised in customer complaints on unauthorised overdraft charges are being considered in the test case.

Q: How can you continue to charge what you do for these services when there is legal challenge?
A: We believe that our current account fees and charges are clear and represent a fair charge for a banking service that is valued by our customers.  That is why we are working with the other major UK banks and the OFT to obtain certainty through legal proceedings, which we believe will clarify the law in this area.

Q: Does this test case and the suspension of unauthorised overdraft claims apply to my credit card complaint?
A: No this test case and the suspension applies only to complaints about unauthorised overdraft charges and the law which applies to them.

Q: Where can I find out more?
A: You can contact us by calling 0845 3 000 000.

Alternatively, you can find more information through the following links:
The Financial Services Authority:
www.fsa.gov.uk 

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

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