The Bank That's Fair

To keep up my professional development points, I'm currently groaning under more than just the weight of the judgments in the UK overdraft charges litigation against the 7 institutions who've cornered the current account market.

Here's some context for the case:

• UK overdraft users - and particularly those who incur fees - essentially pay for everybody's personal current account service. Mr Justice Smith found in his April judgment that interest on credit balances as well as overdraft interest and fees are relied upon by banks to provide "free-if-in-credit banking" (para 53). The fees "are not set by reference to the costs of activities which give rise to them, but... to support the personal current accounts service as a whole" (para 54).
  

• Further, consumers have no real choice in the market for current accounts. So they're stuck with the current pricing situation. In July the OFT reported that:
  

"The complexity and lack of transparency of personal current accounts makes it extremely difficult for individual customers to compare their bank account with other offers. There is thus little incentive for consumers to switch - especially as people generally believe that it is complex and risky to switch accounts. Also, when the switching process does go wrong consumers can find themselves bearing a significant proportion of the resulting costs. The result is that only six per cent of customers we surveyed had switched in the last 12 months - one of the lowest switching rates in Europe."

While I'm interested in the judicial reasoning to date, you'll be aware the case is frustratingly inconclusive on whether or not the charges can even be assessed for fairness, let alone whether they are actually fair or not. In the current economic circumstances, I agree with Which? that such uncertainty is "piling on the misery" for those affected - and as Mr Justice Smith found in his April judgment (at paras 56, 57), that's roughly 20% of current account customers with an overdraft facility. The Financial Ombudsman Service is awaiting the outcome of proceedings before processing any more complaints and this has encouraged various opportunists to bury their snouts into the trough of despair.

In the midst of all this, you may recall that Barclays recently launched its "Personal Reserve" - an 'over-overdraft', as it were. It's obviously an attempt by the bank to dig its way out of the litigious mess. But as this slew of Google search results demonstrates: when you're in a hole, stop digging.

Personal Reserve is supposed to be a very "simple and transparent" "service" in itself. Trouble is it's targeted at overdraft customers on an opt-out ony basis. And surely one can infer that it is intended to address a key issue with the underlying overdraft - what happens when you exceed the limit. In that sense it could be seen as a feature of the overdraft, rather than a service in itself. Further, a trawl through the multiple web pages describing the feature alone suggests that it is some distance from being either simple or transparent. It's less than clear what happens if you opt out - I can't even find a link to an explanation of the ordinary unarranged overdraft situation, if that still applies. And the fact that there are many different circumstances which can trigger additional charges makes it just as tough to forecast the potential cost of a 'bad month' as with any overdraft - something that's never been what you'd call "simple" or "transparent". Finally, it just doesn't smell right that one could be charged £22 every 5 days that you use as little as £1 of your "Personal Reserve" (see FAQ #7).

I'll spare you further detail, save to say that the feature does rather whet one's appetite for a whole new merry-go-round of analysis as to how well it really complies with the myriad technical requirements of the law related to fees, interest rates, advertisements and consumer contracts, including the Unfair Terms in Consumer Contracts Regulations 1999 (the subject of the current litigation) and the brand new Consumer Protection from Unfair Trading Regs. Indeed, it will be interesting to see how this feature, and overdraft charges generally stack up as "treating customers fairly" etc., etc., under the FSA's reforms to the retail banking regime, whenever those might take effect.

But as the current inconclusive litigation demonstrates, the legal niceties don't transmit to the coal face very quickly, if at all.

So surely there's a golden opportunity for one of the members of the current account collective to break ranks and genuinely distinguish itself from the others. It could start by submitting to an independent assessment of the fairness of its charges. Then it might capitalise on the pleasant surprise by diverting the money it spends on TV ads claiming to have the personal touch towards actually engaging with customers to produce something that they buy into as fair.

Anyone for first-mover advantage?

How EU Law is Made. No, Wait, Unmade

You may recall my abortive attempt some time ago to launch a Quest for the Source of EU Legislation. Well, in that vein I now commend to you Simon Bradshaw's excellent post on Whatever Happened to Amendment 138.

A giant hat-tip to Hugh Hancock, creator of the "Save EU Amendment 138, stop extra-legal punishments and stop Three Strikes!" Facebook group, which seems to have done its job.

I've also added some long overdue blogs to the blog roll to help stay abreast of the subtleties. Perhaps I should also somehow find the time to help with the Free Legal Web initiative to create a window into all these shenanigans, but a client calls...

That'll Be All, Thank You Gordon.

They've really done it now. After ten years of unrestrained public sector expansion dressed-up as "Prudence" and leveraging their way through the good times like investment bankers on speed, New Labour's got no choice but to raise taxes. As Martin Wolf puts it, "This is a different country."

And as the late, great Hunter S. put it:

"... The Swine are gearing down for a serious workout this time around... So much, then, for The Road — and for the last possibilities of running amok in Las Vegas..."
The Great Shark Hunt: Strange Tales from a Strange Time

Even Faster Payments, Please

My refusal to pay for a current account landed me at Alliance & Leicester some time ago, as it also took the extraordinary step of paying decent interest on a regular balance. "Clunky" is not the word for it, and you really need your wits about you to avoid the fees lurking within. Being a retail financial services lawyer helps mightily.

Recently the bank left me a message to say that it had decided to introduce so-called Faster Payments. This is hardly dazzling - you may be aware that this has its roots in the tidal wave of frustration at slow payments that was punctuated by the Cruickshank Report in March 2000, and the ensuing regulatory saga. I was there to help "sink the slipper", as a quaint Australian rugby expression would have it. Typically, the UK banks fought tooth and nail to avoid the inevitable conclusion that:

"there were profound competition problems and inefficiencies associated with payment systems in the UK. The report found that the underlying economic characteristics of the systems did not deliver price transparency, good governance, non-discriminatory access, efficient wholesale pricing and innovation."

I won't bore you with the catalogue of dithering over implementing a solution, but the fact that "faster payments" are long overdue is evident from the APACS's bizarrely triumphant puff:

"Faster Payments is the first new payments service to be introduced in the UK for more than 20 years. For the very first time phone, internet and standing order payments can move within a few hours - almost at the touch of a button."

But compare the APACS puffery, with the statements below from Alliance & Leicester. Note the nasty little catches marked by * and **. I've brought the weasel words up from the footnotes and placed them in bold italics immediately after each. I've even had to use red text to show the nasty catches within the nasty catches. There's a way to explain what they're doing without making such sweeping claims or promises in the first place. Faint hope that nonsense like this might disappear under the tighter FSA regulation of retail banking.

"We are improving our service to you by taking part in a payment scheme being introduced across the banking industry called Faster Payments. This means that when you move money electronically either by internet or telephone banking it will usually be available for you to use on the same day*. Other types of payments such as direct debits and the time it takes for a cheque to be available will not change. Payments to Alliance & Leicester Credit Card will not be sent using the Faster Payments scheme. This means that the time it takes for these to go through will also not change.

What this means to you

Currently, if you move money between accounts or make bill payments, it will normally be available 3 to 4 working days later. Faster Payments means your money will usually be ready to use on the same day.

We are now able to receive money by Faster Payments and have started to send money by the scheme. We plan to have the Faster Payments scheme fully implemented later this year. Certain conditions will apply**. If the bank (or account) you have requested the money to or from is not part of the Faster Payments scheme, your money will continue to be moved using the BACS (Bankers' Automated Clearing Services) scheme and will be available for you to use 3 to 4 working days later. The Faster Payment scheme limit is £10,000 for immediate transfers and one off transfers that are set for a future date. The limit for standing orders is £100,000. Standing orders move money to another account on a regular basis. To start with we will have lower limits. These limits may change at any time without us telling you first. Other banks' limits may be different. Additional security checks may be carried out to protect you from fraud. If this happens your money may not be available on the same day.

You can easily make transfers or bill payments 24 hours a day, 7 days a week using our internet or telephone banking services.

[skipping several paragraphs of guff about internet and telephone banking that separates the * and the ** from the corresponding footnotes]

The Faster Payments scheme will allow you to keep your money in your account for longer."

A little premature to make the last claim so unreservedly, I'd say.

PS: 18 June '09: Here's John Kay's piece on the anniversary of the "faster" payments programme.

Early Payment of SME Invoices

Today the FT reports that "88 per cent [of traders surveyed] reported bigger companies not paying on time – a factor that 72 per cent said had a serious impact on their business."

Early this year I was involved in discussions about a way for individuals with surplus cash to enable SME's to get their invoices to big corporates paid early - and at rates that are competitive with SME's current financing options, represent a great return on people's spare cash, and allow big corporates - and the public sector - to extend their payment terms. This would be additional to SME's current financing options, rather than interrupting or replacing them.

The parties required to implement the necessary process agreed how it should work in detail. Their remaining challenge was finding the SME-facing brand necessary to market the service effectively. Early discussions with the perfect brand yielded some progress, but ultimately launch depended on another of their initiatives progressing.

One way it could work, in basic terms, is that the supplier offers to assign the invoice to Zopa or a collection agent for the benefit of the Zopa members who chip in to pay it early. Notice would need to be given to the corporate buyer to pay the invoice amount to the Zopa members' account. Someone at Zopa would also need to call the corporate buyer to ensure it was happy with the arrangement and confirm the date the buyer is promising to pay. That promised date could go on the invoice listing. Zopa members could then study the listing and decide what discount rate to offer (credit reference data would be available for those that want it). There would be an auction, so pricing would be very transparent.

There's another model that would work in reverse, with buyers posting invoices it's prepared to pay - with a promised payment date - to suppliers' accounts. The suppliers could then hit a "Pay Me Now" button that takes them to the Zopa site where their invoice could be listed etc. While that model is certainly technologically possible now, I suspect that it would follow once people got the hang of the supplier-driven process.

At any rate, if you're a supplier to big corporates who's frustrated by their extended payment terms, why not contact Zopa and say you're interested in either model I've described?

Maybe the continuing explosion of the late-paying problem, coupled with falling savings rates on people's spare cash, will hasten the implementation of this solution.