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In its highest profile judgment so far, the Supreme Court has reversed the decisions of the High Court and the Court of Appeal by ruling that the OFT is not entitled to assess the fairness of bank charges under the Unfair Terms in Consumer Contracts Regulations 1999.

The decision is currently the top story on the BBC News website, which features a clip of Lord Phillips delivering the judgment this morning. The result is unexpected and hugely significant, not only because it derails the consumer campaign against bank charges which led to the OFT investigation, but also because it shows the Supreme Court grappling with its constitutional role.

Looking at the legal issues, although the question before the Supreme Court was a narrow one, contrasting their reasoning with that of the Court of Appeal (a high-powered panel including Lord Clarke, now a Supreme Court justice himself) is fascinating. The case turned on whether the OFT was entitled to assess the bank charges for fairness in light of Regulation 6(2), which excludes “core terms” – i.e. relating to “the definition of the main subject matter” or “the adequacy of the price” – from assessment. The Court of Appeal had held that terms permitting banks to charge for unauthorised overdrafts, bounced cheques and the like were not core terms, because they were only triggered by exceptional events and did not inform customers’ decision-making processes when choosing where to bank.

In contrast, the Supreme Court held that the ability to impose charges was a core term. Lord Walker pointed out that bank charges were regularly incurred by around 12 million people out of the bank’s total 42 million customer base, bringing in around 30% of the banks’ revenue from those customers, and allowed the banks to cross-subsidise their “free if in credit” model for personal banking. The Supreme Court could not accept the OFT’s submission that the liability for charges was not part of the price that customers agreed to pay in exchange for banking services.
In any event, the ramifications of the judgment will be significant for banks and customers. For obvious reasons, banks are currently sensitive to public scrutiny. Ahead of the judgment, several banks had already slashed their charges: see our post here.  Today, the British Bankers’ Association acknowledged that “the issue had been of real concern to a large number of our customers” and said that the banks would “work with the regulators to ensure that the outstanding customer complaints are brought to a swift conclusion”.
On the other side of the fence, the litigation was a real example of consumer power, in particular via the internet, making a genuine difference.  Sites like the Consumer Action Group and MoneySavingExpert were vital to achieving the critical mass of momentum behind the thousands of complaints and County Court cases which led to the OFT investigation. There has been widespread shock at the result: The FT quotes the CEO of Which? Magazine as describing the ruling as “a bitter blow”.
Given this backdrop, although the Supreme Court’s decison concerns only English law and no reference was made to the European Court of Justice, the judgment will not be the end of the story. It may well be that voluntary refunds and regulation are the ultimate outcome, something which The Independent  reports that the Treasury has already indicated they are likely to pursue.
Finally, it is interesting to see how the court considered that public policy considerations affected their role. You can characterise the dispute in a number of different ways. One is the consumers versus the banks. That was how Lady Hale put it in her short judgment. She commented that UK consumer law aims to give consumers an informed choice, not to prevent them from making unwise choices. She said that the real problem, as far as bank charges were concerned, was that customers didn’t have a choice, because the suppliers all offer much the same product. She said that, fortunately, that problem was a matter for Parliament and not for the Court. Another way of characterising the judgement, however, is the Court preventing the government, via the OFT, from pursing its desired course of action – the type of adversarial ruling that commentators feared the Supreme Court would feel empowered to make. In this case, the judgment will force the OFT, after years of expensive litigation, to go back to the drawing board.
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