Unfair bank? A new set of rules to help you sue
For the past three years, bank customers in the UK have had an excellent set of legal powers to tackle their banks if they think they have been treated unfairly.
Unfortunately, hardly anyone knows about them, and the relevant authorities have failed to give the powers any meaningful publicity.
The rules were been laid down by the Financial Services Authority (FSA).
They are known as the Banking: Conduct of Business sourcebook (BCOBS) and they apply to small businesses as well as to private individuals.
Most significantly, they give any aggrieved customer the right to sue their bank in the county court.
This may not obvious to the first-time reader, but it is spelt out right at the bottom of the document in Schedule 5.
This explicitly links breaches of these rules to the right of individuals to take legal action under section 150 of Financial Services and Markets Act.
What is unfair?
Under BCOBS, your bank has a duty to operate your current account so the consequences are not unfair to you.
Your bank cannot just go ahead and apply your contractual terms regardless of the consequences.
It is obliged to have regards to your interests, when making decisions.
Your bank may want to say they are only obliged to treat you fairly within the limits of the account contract.
However, fair treatment under BCOBS means you are entitled to receive fair treatment despite the limits of the contract (otherwise BCOBS would be rendered completely ineffective by the bank's terms and conditions).
If you discuss your bank's treatment of you calmly with a group of friends or colleagues and the general feeling is you have been treated unfairly, then the chances are you have been.
Unfairness depends on the circumstances.
British judges have been deciding what is reasonable or unfair for hundreds of years so it does not pose much of a problem for them.
Here are a few common examples of treatment likely to be unfair, although none of these have been tested in court yet.
They are drawn from examples discussed on the Consumer Action Group website.
- You or your business have been a long-standing customer of your bank and have kept your affairs generally in order. You suddenly receive a demand for repayment of the overdraft you have depended upon for some time. There is no apparent reason why this demand should have been made, but the bank says they are allowed to do this because of the contract.
- Your bank has refused to allow you to have a "planned" overdraft because of your poor circumstances. However when a forgotten direct debit pushes you over the edge, the bank allows you to have an "unplanned overdraft" and you start incurring charges at a higher rate that plunge you into a spiral of debt.
- Your bank blocks payment of cheques or direct debits and starts adding charges to your account even though you have received no discernible benefit or service from the bank.
- Your bank refuses to discuss your circumstances with you when you fall into hardship.
- Your bank takes your benefits money to pay charges or other bank debts even though you have made it clear you are on benefits and have priority commitments such as food and rent or clothes for your children.
- Your bank's computer systems suffer a glitch that means certain bills such as gas or loan repayments are not paid automatically or a house purchase cannot be completed. As a result you incur charges from other companies, or your credit file is marked by other companies. Your bank refuses to take steps to remedy this damage or to compensate you for the time and inconvenience and stress incurred sorting out the mess.
- You are suffering hardship and you enter into an agreement to repay a debt in regular instalments. Although you never miss a payment and your difficult circumstances haven't changed, your bank for no reason suddenly insists on a higher rate of instalment or complete repayment of the debt. Your bank's demand is likely to plunge you into greater difficulty because either you cannot afford to comply or else if you do, you will be unable to keep up payments to other creditors who have accepted similar repayment schemes.
Having a go
County court small claims are quick, easy, effective and cheap, although you will forfeit your court fee if you lose.
The simplest way for an ordinary individual to bring an action based on BCOBS is to allege that the BCOBS requirements form part of your current account contract (which they do) and that by breaching BCOBS, your bank has committed a breach of contract (which it has).
Keep your claim for compensation modest.
The key is to obtain a judgement in which the judge agrees your bank has breached its statutory duty.
A modest claim, say for £100 or £200, will mean that you risk a much smaller claims fee if you lose.
A county court judgement on the basis of a BCOBS breach can have serious consequences for your bank.
If you win, your next step would be to send a copy of the court judgement to the Office of Fair Trading and the Financial Services Authority (FSA) as part of a formal complaint.
The FSA has the power to impose very serious sanctions on the banks if they breach the BCOBS rules.
Your bank would be very anxious for this not to happen, but this is the only way to start encouraging good behaviour from your bank.
It is hardly surprising that the British Banking Association's guide to BCOBS makes no mention whatsoever of this powerful consumer right.
Rather more surprising is that the FSA's own Know Your Rights guide makes no mention either.
The Financial Ombudsman Service (FOS) website only makes passing references to BCOBS.
Under the previous Banking Code, it was the FOS which dealt with breaches of it.
I am doubtful about the ability of the FOS to apply the new rules.
According to the FOS, it seeks to achieve outcomes that are fair to both sides.
But BCOBS is much more one sided - in favour of customers - and requires fair treatment of bank customers in order to offset the inherent inequality in your bargaining-power.
As the FOS objectives do not seem to square very well with those laid out in BCOBS, I suggest you take the legal route in the county courts if you have a legitimate complaint about unfair treatment by your bank.
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