Banks face deluge of charges claims and massive liability

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Friday, 26 June 2009 17:32

The Banks' liability to their customers is far more massive than anybody has yet discussed or even imagined.   They have demonstrated in the recent House of Lords hearing that they are very seriously frightened.

UK banks fear catastrophic liability when charges are finally declared to be unfair

We had recognised this some time ago on the Consumer Action Group and had been planning a new set of claims templates and legal arguments for our members to use in the courts in order to get their bank charges refunded. However, the arguments used by the banks legal team in the House of Lords have pre-empted us to an extent and therefore we have decided to go public rather earlier than we intended.
The arguments advanced to the House of Lords on behalf of the banks were unusual in that they were not limited merely to the usual legal reasoning.

The banks arguments seem to be filled with dire warnings of what might happen if the House of Lords found against them. It was clear to me that the banks were not paying their top legal team tens of thousands of pounds per day simply in the hope that they could flog their dead horse back to life again. It seemed very obvious to me that the banks have given up.

Instead of trying to win the case they were mainly trying to limit the damage by painting for the Law Lords a very bleak picture of the catastrophe which could follow a successful decision for the OFT. It seems to me that the tactic of the banks is now simply to hope that they can persuade the Lords to produce a judgement which is worded in a way which may prevent some of the worst consequences.

 The warnings given by the banks included:

That the banks might have to make restitution. You might think that this means merely that the banks will have to give the money back. Restitution is much bigger than that because it also refers to "restitutionary damages". This means that the banks would have to reveal all of the profits they have made by commercially reinvesting their customers bank charges. They would then be forced to pay all of those profits over to the claimant: to disgorge their profits. If you imagine that the banks have been lending out money commercially at 15%, 20%, even 23 or 25%, then you may start to understand that the potential liability is huge. Imagine if you were charged £100 in bank charges in 2001, what its value to you might be now if it had been invested at 20% -- compounded . I am no mathematician that could we be talking about any increase in value as much as four times?

The OFT has estimated that the banks are making about 2 1/2 billion pounds per year on charges. The Which Magazine have estimated that the banks are making about 4 1/2 billion pounds per year on charges. Imagine if the banks were obliged to repay all of this plus, say, 20% interest compounded yearly.  A Northern Ireland Competition Commission report indicated that charges comprised about 12.5% of current account income.

One of the features of restitutionary damages is that because the remedy refers to "gain-stripping" rather than loss-compensation" it falls to the defendant to reveal the level of unjust enrichment they have enjoyed at the claimant's expense and then to disgorge those profits upon the order of the court.

That customers might be able to reclaim charges back into the 1990s.  This is correct. We have been urging people on the Consumer Action Group first several months now to start putting in claims back to the beginning of 1995.

The reasoning for this is that if the House of Lords case is successful, then the contractual terms allowing bank charges will become invalid. This means that there will be no contractual basis for any claim for refunds. Instead, claimants will have to sue the banks for the return of money paid under a mistake. The limitation period for the return of mistaken money is six years. However, the six years runs from the time that the mistake could reasonably have been discovered. In this case, the limitation period has not even begun yet. It won't begin until the House of Lords have handed down the judgement and the OFT have formally deemed the charges to be unfair. This means that people will have six years from 2009 right up to 2015 to claim their money back.

 The Unfair Terms in Consumer Contracts Regulations came into force retrospectively from 1 January 1995. If the House of Lords case is successful then all charges which have been taken from bank customers since that date will be unenforceable and will have been paid under a mistake. Bank customers will have six years from 2009 to 2015 to reclaim all the charges -- plus interest on those charges which has been taken from them -- plus restitutionary damages going all the way back to 1995.

 How many bank customers are there who have received charges? Only the banks can know. However, the Nationwide legal team, quoting from a 2006 OFT report,  told the House of Lords this week that 12.6 million people (across all banks) per year were hit with bank charges! This is an amazing figure. If you imagine that many of these people are duplicate in that they receive charges in more than one year, then the figure reduces. However if we say that one third of them, -- 4 million people -- are unique customers each year hit by bank charges -- and if we multiply this by 15 years (back to 1995) then we are looking at 60 million potential claimants over a 15 year period. Of course many of these people will have died. How many people die each year? We may still be left with 20 million or 30 million potential claimants.

 How big could the banks' liability be?  Could it really be as great as £100 billion?  Probably very easily this much.   £150 billion? More? These are dizzy figures indeed.

 One thing that was clear  this week in the House of Lords  is that the banks are seriously frightened. At no point did they explicitly reveal the reason for their fear but if you accept the analysis above then you will find that it all makes sense. And that they are quite right to be very scared.

 The banks are dead men walking. They know it.

 The House of Lords hearing was not a serious court case.

 This week's House of Lords hearing was just a plea in mitigation.

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written by trip secrets, August 21, 2009

The banks stand to lose literallly billions if they are held to randsom over this. The thing is won't Brown just throw more money at them?

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written by peterlucas, August 24, 2009

Not if he's no longer PM by then, which there's a good chance of.
(Not meaning this to indicate support for any given party though).

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written by triumph998, August 30, 2009

Ouch. the banks paying money back which they have so clearly stolen. I cant wait to see these fat cats getting the spanking they so richly deserve. I`m 1st in the queue with my cricket bat!!!!! Bring it on. One question though, Will they pay back all the bonuses they got on MY money? you know the answer to that.

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