Banking on competition

The banks may have rejoiced at the Supreme Court decision in The Office of Fair Trading v Abbey National plc & others [2009] EWCA Civ 116, [2009] All ER (D) 270 (Feb) that the OFT does not have power under the Unfair Terms in Consumer Contract Regulations 1999 (SI 2009/2083) (UTCCR) to assess the fairness of the banks charging terms, but this is unlikely to be the final chapter of this saga.

The banks’ appeal to the Supreme Court was confined to the narrow issue of deciding whether the OFT had power under the UTCCR to investigate whether the system of charging personal current account holders was fair. The unauthorised overdraft charges were part of the “price or remuneration” for the services and as such fell within the exemption of reg 6(2)(b) and could not be challenged by the OFT for fairness, the Supreme Court held.

In what has been described as a “reverse Robin Hood” approach, unauthorised overdraft or insufficient funds charges are largely incurred by low income and low saving consumers and not by higher income, higher saving customers who benefit from “free if in credit” banking. These charges have accounted for over one million complaints by consumers and so the Supreme Court decision is a disappointment not only to the OFT but also to the large number of bank customers who have been subjected to the charges.

Market share

The seven banks and one building society involved in the case before the Supreme Court are estimated to account for 90% of the market of providing personal current accounts (PCA). Lady Hale identified the concern over the lack of competition in the market in her judgment in the OFT case commenting: “...is the real problem that we do not have a real choice because the suppliers all offer much the same product and do not compete on some of their terms?”

The OFT is both a consumer protection authority and a competition authority. The test case culminating in the Supreme Court’s decision was commenced in the OFT’s consumer protection role under UTCCR. The OFT has now decided against proceeding with an investigation under the UTCCR, but has yet to exhaust its role as a competition authority.

Concerns about lack of competition in the provision of banking services have been expressed for some time:
l In 2002, the CC report on the supply of banking services to small and medium sized enterprises found that a “number of specific practices restrict and/or distort price competition”.
l In 2007, the CC report  found that features of the PCA market in Northern Ireland “prevent, restrict or distort competition…and hence that there is an adverse effect on competition”.
l In 2008, the OFT market study into the fairness of bank charges, set in the wider context of competition in the UK banking sector, concluded that the PCA market was not working well for consumers.
l In October 2009, the OFT’s follow up report acknowledged the need for more competition in the PCA market and recognised that “enforcement action or a reference of the market to the Competition Commission may be appropriate and proportionate”.

Options for moving forward

In its Pre-budget Report on 9 December 2009, the government announced that it would take action to deliver change if a voluntary approach by banks does not result in a fair outcome for consumers.

The OFT has also indicated its desire to see changes in the PCA market brought about by voluntary or legislative means and will consult with the banks, consumer groups and the government with the aim of reporting progress by the end of March 2010.

Other options available to the OFT are to make a market investigation reference to the CC under the Enterprise Act 2002, s 131 if it has reasonable grounds for suspecting that competition is not working effectively in the market; or to launch its own investigation under the Competition Act 1998 where it suspects a Ch I or a Ch II prohibition or Art 81 or 82 of the EC Treaty has been infringed.

The matter might be taken out of the OFT’s hands if the secretary of state decides to make a reference to the CC under the Enterprise Act 2002, s 132; or if the EU decides to investigate the bank’s collective position of dominance in view of their 90% share of the PCA market.

If an investigation finds a past infringement of competition rules, this would allow any person who has suffered loss as a result of that infringement to bring of a claim for damages under the Competition Act 1998, s 47A.

Veronica Bailey is a LexisPSL solicitor

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