Bank Charges - The Debate Goes On

In The Office of Fair Trading v Abbey National Plc and

Others [2008] EWHC 875, the test case launched by the OFT into

the legitimacy and fairness of bank charges, the High Court found

that the charges do not represent unenforceable penalty clauses,

but it held that they remain susceptible to an assessment of

fairness by the OFT under the Unfair Terms in Consumer Contracts

Regulations 1999 ("the Regulations"). Following an appeal

by the eight institutions who are party to the proceedings

("the Banks"), the Court of Appeal has now

handed down its judgment, which upholds the decision of the lower

court, albeit for somewhat broader reasons.

The Regulations were drafted to implement the European Directive

on unfair terms in consumer contracts, with the principal intention

of protecting the rights of consumers in their contractual dealings

with suppliers and to set out the circumstances in which a

contractual term should be regarded as unfair. Terms will be

regarded as unfair under the Regulations if, contrary to the

requirement of good faith, they cause a significant imbalance in

the rights and obligations of the parties to the contract, to the

detriment of the consumer. In those circumstances, any such

offending terms will not be binding.

The Court of Appeal agreed with the lower Court that, providing

a term is in plain and intelligible language, an assessment of its

fairness must not relate to:

1. the definition of the main subject matter of the contract;

   or

2. the adequacy of the price or remuneration, as against the

   goods or services supplied in exchange.

   If the intended assessment of the provisions in question could

   be classed as falling into either of these two categories, such an

   assessment under the Regulations would be precluded.

   In considering this point, the Court of Appeal had regard to the

   nature of the services provided by the Banks and the manner and

   terms in which the standard documentation was provided to

   consumers, but also to the quantum of the payments in question, the

   services to which they were said to relate and any other payments

   required under the contract.

   The key test was whether the relevant charges were part of the

   essential bargain between the Banks and their customers. By way of

   illustration, the Court of Appeal developed something of a sliding

   scale to assess the terms in question. Where the charges had been

   expressly negotiated between the Bank and the customer, they would

   not be subject to assessment under the...