As you are probably aware, the Office of Fair Trading is taking the banks to court to establish whether it's allowed to use its powers to put an end to penalty charges.
I wrote two years ago that this could quite easily be dragged out for a total of five years. (Read What's happening with bank charges?) At present, the case has been elevated to the House of Lords. It's taken two years to get to this - the third stage. As I outlined in a more recent article, a result for the consumer could still be dragged out for a further five stages. (Read Bank charges victory still years away.)
Banks admit charges are unfair
It's in the banks' interests to mount a defence as long as possible, even if they think they'll eventually lose. Over time, the amount of money that the banks will hold onto increases, as does the possibility of swerving an unfavourable judgment.
Whilst it's still in the banks' interest to mount a defence, it seems that it may now be a token one. According to the Consumer Action Group (CAG), which offers consumers free help on recovering excessive bank charges, one of the banks' own QCs agreed that bank charges are unfair and very excessive, when speaking with the five Law Lords sitting on this case. This is the biggest admission yet from the banks. The CAG believes the banks aren't fighting so hard anymore, because they know they can't win.
It may simply be that the banks' QC knew he couldn't win that particular argument. I think he may fight a lot harder on the point he followed with: that although the charges are unfair, they are still not subject to the Unfair Terms in Consumer Contracts Regulations (UTCCRs). That is the piece of law that most claimants have been using to fight the charges. If he is right, which none of us believe he is for a second, then claimants would need to find another legal argument.
Claim back to 1995, not just 2001
Two more points came up in my discussion with the CAG. The group believes that we can claim right back to the beginning of 1995, not just back to 2001, as many of us think. Normally you can claim back six years under what's called the 'Statute of Limitations'. The Financial Services Authority told the banks in 2007 that, whilst this case is ongoing, it shouldn't use the passing time as an excuse not to pay claims.
Many have taken this to mean that the period of time from which you can claim should be locked in from 2007, meaning you can claim from 2001. (However, if the banks will respect the FSA's orders and whether the order will work in practice is an entirely different matter.)
Yet CAG argues that we can claim back further in to the past, because the law can be more flexible if you couldn't have been aware sooner that you had a legitimate claim. The UTCCRs were introduced in 1999 but were retrospective, meaning that claims could be made back to the beginning of 1995. Hence, this is the date CAG says claimants should claim from.
The legal opinion I obtained separately on this back in 2006 was contrary to CAG's, but this shouldn't stop you from claiming all the way back to 1995 anyway. It won't hinder the rest of your case to do so, and you can simply leave it to the best judgement of the court.
Repayments from banks could double - or quadruple
The next point is more convincing, and it's the one that would be filling the banks with fear - if they didn't think they'd just get bailed out by the taxpayer again and find another way to make massive profits.
Returning to the House of Lords trial, CAG believes not just that the banks have given up on their defence of unfair charges, but also that they are looking to limit the damage. This seems entirely plausible. The banks' QC made plain his concerns about the cost of restitution, probably in the hope that the Lords' final judgment is worded to prevent it. 'Restitution' may seem like a harmless word, but in legal terms it's extraordinary.
What it means is that you would not only get your charges back, but you'd also be paid any profits that were made on those charges. The bank will have taken the charges and lent them to other people or, indeed, back to the claimants themselves, and therefore made more money.
Here's an example. Let's say that you were charged £100 in the middle of 2001. The bank would be forced to reveal any profits it made on this. By lending it to other people and otherwise re-investing it, they might have made, say, 10% net per year. Compounded since 2001, that'd mean the banks need to repay a total of £214 per £100 taken in charges that year, more than doubling the payout.
Taken with the possibility of claims back to 1995 instead of 2001, this means the total cost to banks could be around four times higher than previously thought. By my estimates that's about £80bn. Not all of that will be paid out in practice, but even a few billion is important to banks at the moment - never mind us borrowers!
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