Bank Customers Stunned by Supreme Court Ruling on Unfair Overdraft Charges

After fighting what it believed to be unfair overdraft charges from banks, the UK’s Office of Fair Trading (OFT) has lost its two year court battle against seven major banks and one building society. The case had begun in lower courts, but after appeals by the financial giants, landed in the Supreme Court where the five most senior judges in Britain ruled that the OFT does not have the power nor authority to monitor banks for unfair charges. As a result, many customers expecting refunds of wrongly applied and excessive charges will get nothing back, the bad news coming at a time when many had been looking forward to having their money returned in time for the upcoming holiday season. A large percentage of those expecting the return of these fees will be turning to Individual Voluntary Arrangements and Debt Management Programmes as a way to get back on their feet financially.

The ruling stunned both legal and financial experts who had no doubt that the Supreme Court would rule in favour of the OFT rather than the banks. In fact, in a previous ruling, the banks had been told not to bother taking their appeal to the Supreme Court because there was almost no chance that they would succeed due to widespread disapproval from consumer advocacy groups working to help a huge number of UK consumers already struggling under massive loads of debt.

The OFT had sought to monitor these charges after customers began reporting fees ranging from £20 to £50 for each accidental overcharge to their accounts, even if those accidents were only a few pounds more than their account’s balance. In particular, consumer advocates felt that the fees were designed to target lower income customers who are already financially at risk and that this made the bank’s practice look eerily similar to predatory lending, a greatly disapproved of practice in Britain. Prior to taking the case all the way to the UK’s highest court, the OFT had won two cases in both the High Court and the Court of Appeal, exactly as experts had predicted.

The OFT had expressed concerns that the flagrantly high overdraft charges were unfair and could be considered unauthorised charges since they were subject to changes in price, without written or verbal customer consent, at the whims of the banks themselves. However, the banks considered the terms to be part of the contract customers signed when opening an account and alleged that the overdraft charges were needed to avoid having to charge fees for other services given to customers with more money in their accounts.

Financial and legal experts remain greatly puzzled as to why the judges of the highest court in the land ruled in the manner that they did after the previous rulings by the lower courts. The judges did issue a brief statement that the OFT has interpreted to mean that the grounds of their case was too narrow in scope to be effective at allowing them the power to monitor the banks fees to its customers. In other words, the Supreme Court feels the OFT, an official government body, does not have the right to monitor banks in an effort to protect financially vulnerable consumers from large lending institutions – at this time. The OFT had intended to investigate the fairness of the charges under the Unfair Terms in Consumer Contracts Regulations 1999, but have been told that this will not be considered possible under the law as it stands now. The OFT was also told not to pursue the case in the courts of Europe and to keep it within the UK.

The defendants in the case that the OFT brought were one building society and seven banks, including HSBC, Lloyds TSB, Nationwide, Clydesdale Bank, HBOS, Barclays, Abbey, and the Royal Bank of Scotland Group. All of these lenders had claims pending against them by a staggering number of customers, but all of those claims were frozen by the Financial Services Authority pending the Supreme Court’s verdict.

This means that customers waiting to get their fees refunded will now likely never see a penny returned to them. Had the ruling gone in favour of the OFT, the banks were facing nearly £20 billion in presumably unfair overdraft charges that they would have had to give back to customers. This would have been quite a blow struck to an already teetering financial sector, but also a major boon for consumers struggling with historically high levels of debt themselves.

The Treasury has promised to more aggressively pursue lending institutions that insist on excessive charges, going so far as to state that they intend to push forward legislation to cap overdraft charges if the banks and building societies will not limit the charges on their own. While this may help future customers of the lenders, it will unfortunately leave all those who have been overcharged up until now with zero compensation.

Many people are curious about what has happened during the past twelve months that could possibly have led to this Supreme Court decision. Over the past two years, despite the appeals by the banking institution, legal experts had been positive that the OFT would be clear to return the overdraft charges to customers, especially if the case made it to Britain’s highest court. However, during this time the government has bought up 43% of HOBOS and 84% of the Royal Bank of Scotland, two powerful UK banks. Adding to this the fact that the government recently announced that it secretly injected 62 billion pounds into both of these banks, could there be a conspiracy in play or is it simply coincidence that the government was facing a 20 billion pound loss if the OFT had gotten its way?

Ireland Seeks to Battle Toxic Loans with NAMA

The National Asset Management Agency (NAMA) has been set up by the Irish government in an effort to battle what have been called ‘toxic loans’ that are bogging down the Irish Republic’s banking system. For some, however, the acronym has become something of a four letter word, causing great concern as to its mission and actual effects on the economy of Ireland. A conference in Belfast is being held to make sure that the agency’s purpose and directive is fully understood.

According to some experts, Irish banks are already changing from a soft approach to a more aggressive stance towards debtors and this is likely to increase with the coming of NAMA, but for the majority the agency’s arrival will simply mean that their loans have shifted to a different lender.

The change is not expected to be immediate due to the political and legislative process involved in the transfer of those jeopardized loans. NAMA’s role is to cleanse the banking system by handling certain troubled debt and therefore encourage the banking system to resume lending to consumers once again.

In the seven year period stretching from 2001 to 2008, Ireland went on massive borrowing spree that saw debt soar from 10 billion to 110 billion euros within that brief period largely due to loans taken out by companies in the property and construction sectors of the market. In 2010, a full 77 billion euros worth of that debt will be transferred to NAMA with 23 billion euros worth of the debt written off prior to the transfer.

Financial experts have commented that recently Irish banks have been more frugal in their lending, even in regards to credit worthy companies. The hope is that with NAMA’s intervention, the banks will once again find lending to businesses with a sound financial outlook to be a smart move due to increased liquidity in the banks themselves.

While the majority of the debt, 66 percent, is located in the Republic of Ireland, another 6% is from Northern Ireland. This has raised some alarm for that region since critics of NAMA worry that its actions may trigger a fire sale of Northern Irish assets that, in turn, wreak economic havoc in that state. The remainder of the debt lies in Great Britain (21 percent), Europe (4 percent) and finally, the United States (3%).

Certain investors in the private sector have expressed trepidation that NAMA’s involvement could mean discounting of assets before they are purchased and thus major losses for those involved, but at this time that remains speculation.

Another potential contribution NAMA may make is the release of 10 billion euro’s worth of capital to help kick start stalled construction efforts that remain stalled due to lack of funding. The effects of NAMA remain to be seen, but the impact is expected to be felt primarily within the borders of the Republic.

Irish citizens do have certain rights when it comes to challenging valuations of foreign based debt, but not such debt within the Republic’s borders.

If you would like more information on debt in Ireland, there is a website that focuses on these issues, Irish Debt Solutions.

Four Seasons Settles on Debt Restructuring Plan

Four Seasons Health Care, a company that operates care homes, recently announced that it has agreed to a debt for equity deal with its creditors. Four Seasons has over 400 homes across the UK in which it cares for its charges. This agreement marks the end to one of the longest running restructurings of debt since the start of the current recession.

The deal will reduce the company’s debt from £1.5 billion to £780 million through a trading of debt for equity in the company. This means that the largest shareholder in the Four Seasons will be the Royal Bank of Scotland thanks to the amount of the company’s debt it has been holding. The agreement means the bank will own 40% of Four Seasons.

According to top executives at Four Seasons, the company will begin working toward a long range solution to paying off its remaining £720 million debt. This is crucial because that debt comes to maturity in September 2010.

In 2006, Four Seasons was purchased by Three Delta, a Qatari-backed investment fund. Three Delta paid £1.4 billion in a complicated arrangement that involved securitisation, 11 tranches of debt and a syndicate of lenders including over 30 parties.

Court Ruling Frees UK Woman of £8,000 Credit Card Debt Debt in Landmark Case

A judge has written off the £8,000 credit card debt of South Shields woman who was unfairly sold payment protection insurance (PPI) in a deceptive manner. The country court judge determined that MBNA was attempting to collect on insurance the woman had refused when she opened her credit card account.

This ruling is expected to initiate millions of pounds worth of similar cases being brought to court against building societies and banks across the UK who practice similarly deceptive methods of selling such policies. Throughout Britain there have been 40 million PPI policies solid in the past six years, making PPI the second highest selling insurance product being sold today.

While Debt Management Plans and Individual Voluntary Arrangements (IVAs) are excellent solutions for those with legitimate debt problems, wrongly administered fees are on the rise in the UK, so legal experts predict that this court case, while possibly extreme, may signal the need for sweeping changes in the way that credit card issuers are doing business.

In this particular case, the woman had checked ‘no’ for PPI when she signed up for the card, a Sunderland ASC-branded credit card funded by MBNA. Despite this, the company applied a fee of £20 per month. With a credit limit of £1,500 that suited the mother of three’s needs, the card was useful occasionally. That was in July 2002, but gradually the limit was was raised until she reached £7,000 in debt upon having her hours as a cleaning supervisor reduced from full time to part time.

Even contacting the company did no good, representatives informed her that she could not have gotten the card without signing up for PPI. As the debt collection calls became more frequent and MBNA began to threaten to repossess her house, she turned to legal help which assisted her in taking her case to court.

Deputy District Judge Jacqueline Smart ruled that the partnership MBNA with the PPI providers was in breech of the Unfair Relationships and Unfair Consumer Credit Act Section 78 due to the fact that MBNA earned a commission upon each sale of the insurance.

Borrowers Keep Faith in Bankers Despite Elusive, Costly Nature of Bank Debt

In spite of a call from Alistair Darlings for banks to better their lending services, 55 percent of mid-market businesses still report that they are experiencing trouble getting credit and that the process is often a long one. While credit is expected to become easier to obtain in the coming year from a select group of lenders, 46 percent of borrowers remain unconvinced that it will become easier or less costly for them to obtain the financing they need.

These figures were announced as part of the findings from a survey of senior financial decision makers at UK companies whose task it is to work with the banks. The survey was conducted by BDO Stoy Hayward, a firm of business advisors and accountants.

Overall, the survey found that borrowers still retain some faith in the banks they work with, though a full 67 percent of companies reported that their opinion of banks has lessened during the course of the previous year. Of those surveyed, 85 percent stated their company experienced no change with their own bank and 62 percent claimed their bank understands the evolving needs of their business.

The cost of bank debt and the ability to obtain it continues to be an issue for any businesses which makes it something of an obstacle to total economic recovery. Even those state-owned banks with lending commitments have not managed to make much of an impact thus far. Though banks will find themselves increasingly interested in lended to solid businesses, due to the low levels of competition they will not have to undercut one another in terms of pricing for some time to come.

Nearly half of those companies surveyed reported they were seeking out alternative funding sources, including asset based lending, in the coming year. Nearly 85 percent have said they currently use an independent advisor to help them obtain financing and are generally experiencing positive results.

Desparate Britons Seek to Sell Kidneys to Pay Debts

In a sign that economic times are definitely getting far rougher that previously believed, undercover reporters have exposed a shocking trade that financially strapped UK citizens are turning to in an effort to pay down their debt.

The reports show that a variety of individuals from different walks of life have found themselves so far in debt that they they are unsure where to turn and so they have sought out potential buyers for their own internal organs. One taxi driver from Lancashire advertised his kidney on the internet, seeking to raise £25,000 to pay off his credit card bills and mortgage as well as buy himself a new kitchen. In addition, the man seeks £1,200 for lost wages that the operation would cost him plus £1,000 to cover his hotel expenses because the transplant surgery would have to take place in a foreign country where regulations are far less strict.

For his part, the taxi driver explained he was less motivated by financial gain as by the thought that he might be able to save another person’s life with his kidney. Having already been approached by a man from Pakistan whom he felt was not a person in need, but rather a organ broker, the man wanted to meet the person to whom the kidney would be going before submitting to the potentially dangerous operation.

Those who undergo such operations risk an assortment of potential health problems not from lack of a kidney, but from the operation itself. Infections and blood-related issues are the most common killers of those who undergo even a successful organ donation surgery.

Another man, a mental health professional in his mid 20’s, sought £25,000 for his kidney in the hopes that it would help him pay down a debt and make a better life for himself and his son. His debt stands at £20,000 and is held by people whom the man claims are not of the type that anyone would want to be in debt with. Since he sees no other option, this is the route he has chosen to go.

The reason no British surgeon would ever agree to perform such an operation is due to the fact that the mere offer to sell one’s organs is a violation of the Human Tissue Act with a fine and a penalty of up to three years in jail, even if the surgery itself is not set to be performed on British soil.

A global underground organ trade is certainly growing, but in the UK options such as an IVA or even Bankruptcy are far better alternatives in terms of their effectiveness and legality.

Those With Debt Facing More Court Actions

Debt recovery company Lovetts, says it is chasing debt more vigorously than before through legal means. In the second quarter of 2009 it has increased court cases being brought against debtors by 105% from the same quarter in 2008, a telling sign for these rough economic times in the UK.

The value of the debts pursued through written communication prior to entering the court system has increased by 38%. Since pursuing legal enforcement of debt collection is generally an ultimate last resort, this is indicative that those who are not entering IVAs or debt management programs are quite likely going to be subject to further debts via the highly uncomfortable legal process involved in debt collection.

According to media sources, Lovetts’ chairman has said he hopes other businesses will take a similar approach to debts.

Student Debt in the UK Expected to Hit £23,500 per Student

Students entering into institutions of higher learning this Autumn of 2009 are expected to graduate with debts of £23,500 according to new research that is being widely reported across UK media. Those students in Northern Ireland, England and Wales will be paying the most while students in Scotland, where higher education is paid for with taxpayer funds, are expected to amass a debt only half the amount of those in other areas of the UK.

With the cost of higher education expected to rise by a full 10% in coming years, many potential students may find themselves unable to afford a degree of their own. This news comes along with word that Goverment may lift the £3,100 cap on tuition fees since some vice-chancellors are calling for a doubling of fees after an expected review of funding levels which should take place later this year.

The National Union of Students warns that many incoming students are facing what they term “a lifetime of debt” due to these rises in schooling costs.

At the present time, undergraduate students can expect to owe £5,000 per year of schooling. This is going to be rising in the coming years, but also it must be taken into account that those pursuing mathematics, science or engineering courses face an additional £1,300 in books and additional fees, as well.

With all of these costs rising so rapidly, many students may end up deciding against schooling partway through. This phenomenon is leading to penalties on loans or grants that must be paid back at differing terms once students have left their degree programs. This means huge debt with many former students turning to IVAs and Debt Management Plans as a result since the debt further hinders their ability to establish the life they would like to lead.

David Cameron Warns UK Runs Risk of Defaulting on Its Debts

The leader of the UK’s Conservative Party, David Cameron, has been reported as saying that he believes the Government runs the risk of defaulting on its debt due to increased borrowing in recent times. His statement was not intended to be a prediction, but rather a warning intended to show that the same financial issues leading so many UK citizens towards IVAs and even bankruptcy can happen at the national level, as well.

Due to recession fueled drops in tax revenue, the Treasury announced in April that it would borrow 269 billion pounds more than it had previously estimated. The shortfall this year totals 12.4% of GDP (Gross Domestic Product) and is the highest shortfall of all the Group of Seven nations.

Standard & Poor has already warned the UK that it risks losing its AAA credit rating as the debt nears 100% of its GDP which stands at nearly 1.3 trillion pounds. They’ve changed their view from “stable” to “negative”. In June of 2009, the Government had 657 billion pounds of debt which is over 56% of the GDP. The current debt is the largest amount owed since 1976 when the UK borrowed from the International Monetary Fund to meet overseas financial obligations. Other than this, the Government has not defaulted on a payment since the days World War II.

On August 20, the Treasury will reveal the amount it collected in July which is typically the second largest month of revenues in the fiscal year. There has not been a deficit in July since 1996.

Actor Neil Morrissey Enters IVA to Repay Debt

Known as a star of the hit show ‘Men Having Badly’ and the voice of children’s show ‘Bob the Builder’, actor Neil Morrissey was also an investor. Unfortunately, his property investments did not turn out as he hoped and his company got into financial troubles that forced his partner into bankruptcy after only five years.

Morrissey’s company had invested in several ventures including a pub that Welsh poet Dylan Thomas had been known to frequent. When the property scheme collapsed, Morrissey was quoted as saying he felt “morally obliged” to repay his debts via an individual voluntary arrangement instead of declaring bankruptcy.

At age 47, Morrissey will spend the next three years repaying his debt, but has said he feels most comfortable with this solution at a personal level.