Policy
Response
BIS – Call for Evidence
Consumer Rights Directive: Allowing Contingent or Ancillary Charges to be Assessed for Unfairness|
Contact: Chris Lawrenson Date: 17 Aug 2010 |
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Introduction and Summary
The Building Societies Association (BSA) represents mutual lenders and deposit takers in the UK including all 50 UK building societies. Mutual lenders and deposit takers have total assets of over £370 billion and, together with their subsidiaries, hold residential mortgages of over £235 billion, 19% of the total outstanding in the UK. They hold almost £250 billion of retail deposits, accounting for just under 22% of all such deposits in the UK. Mutual deposit takers account for about 36% of cash ISA balances. They employ approximately 50,000 full and part-time staff and operate through approximately 2,000 branches.
This paper responds to the questions in the call for evidence on the Consumer Rights Directive, published in July 2010 by the Department of Business, Innovation and Skills (the Call for Evidence). In the BSA’s view, the Call for Evidence does not make a valid case for a UK negotiating position promoting a broadening of the unfair terms legislation to cover a wider range of charges. Therefore, we believe that the UK position in Europe on this particular matter should be one of no change.
The BSA believes that the interests of both consumers and businesses would be best served by greater consumer law simplification, on which the BSA has produced, and submitted to Government, a 12-point plan (for details, see -
Therefore we welcome the Coalition Government’s commitment to cutting red tape and hope that this meets with greater success than previous exercises with a similar aim.
Responses to Questions
1. Do you agree with the Government premise that because charges are contingent, ancillary or not transparent, or otherwise not part of what a typical consumer would understand as “the essential bargain”, competition may not drive down the level of such charges as it ordinarily would?
As far as the question is intended to apply to unauthorised overdraft charges, we have a number of observations. Fundamentally, the question misunderstands the legal and practical position.
First, page 3 states that, following OFT v Abbey National plc and Others [2009] UKSC 6, “there is now uncertainty as to how UK legislation on unfair terms in consumer contracts applies to charges that are “contingent” or “ancillary” to the core of the contract”. In his Judgment in OFT v Abbey, Lord Walker said –
“…delivery of goods or peripheral extras may be disregarded as ancillary for the purposes of para (a) of Regulation 6(2) [the so-called ‘core terms provision’ or ‘price exemption provision’] but the charges for them, if payable under the same contract, are part of the price for the purposes of para (b).” (paragraph 46)
Lord Walker went on to explain (in paragraph 47) why the charges in question were not ‘ancillary’. Therefore, the Supreme Court has made it clear that charges for unauthorised overdrafts are not ancillary to the core of the contract, yet the Call for Evidence seems to assume that they are.
Second, regarding clarity and transparency –
- there is already a requirement for relevant terms to be “in plain intelligible language” (Regulation 7 Unfair Terms in Consumer Contracts Regulations 1999 - UTCCRs).
- providers have done, and continue to do, a great deal of work with the OFT to
ensure transparency of such charges; see –
www.oft.gov.uk/OFTwork/markets-work/completed/personal/.
Third, in the light of the enormous publicity concerning bank charges in the last few years, it is almost inconceivable that there are many members of the general public who are not aware of them.
For all these reasons, we do not agree - in relation to unauthorised overdraft charges - with the basis for the stated premise. Therefore, it follows that we cannot agree with the premise itself.
2. Should any exclusion from the price exemption provision in the UTCCRs (Paragraph 6(2)) focus on:
- contingent charges – made only on the occurrence or non-occurrence of a particular event – and/or;
- ancillary charges which require the consumer to pay additional sums for matters outside the ordinary and expected performance of the contract – and/or;
- charges that are not transparent to the consumer for reasons going beyond the clarity of the language used, for instance in terms of presentation; or all three of the above.
‘Contingent charges’ would be far too broad, because a very large number of charges will be based on a contingency, and this approach could severely damage freedom of contract.
‘Ancillary charges’ – again, it depends what is meant by ‘ancillary’ – the term does not, as the Supreme Court explained (see above) cover contract terms providing for unauthorised overdraft charges, like those of the litigant providers. We refer BIS to paragraph 46 of the Supreme Court Judgment, where Lord Walker explains the meaning of “ancillary”.
Regarding “charges that are not transparent to the consumer for reasons going beyond the clarity of the language used”, paragraph 28 of the Call for Evidence refers to charges that are –
“effectively “hidden” even if they are explicitly mentioned”.
Unauthorised overdraft charges are, as noted above –
- in plain, intelligible language (otherwise they breach the UTCCRs)
- transparent (the OFT exercise is ensuring such transparency), and
- well known to the public because of massive and prolonged publicity.
Therefore, they are not “hidden” in any normal usage of that word.
3. Are there matters the Government should consider in terms of the interpretation of concepts such as contingent, ancillary, non-transparent terms or “essential bargain” or other terms which are relevant?
Please see responses to above questions.
4. Should all contingent price terms be assessable even where they are likely to be in the forefront of consumers’ minds when contracting eg estate agency sale fees? If not, what other criteria should be involved?
If all such terms were to be made assessable then this would amount to price control. The other criteria are as set out in the UTCCRs and as interpreted by the courts.
5. Would you support a provision which would simply allow charges to be assessed for unfairness if they were not, from the consumer’s perspective, part of the “essential bargain” between the consumer and trader? Would further conditions need to be applied?
We would not support this for reasons already explained but, if such a provision were to go ahead, a crucial condition would be that it would have to be judged objectively on the basis of a ‘reasonable consumer’. If the test were subjective, it would be likely that some consumers, faced with charges they did not wish to pay, would claim that they did not regard the charges as part of the essential bargain. Again, for reasons given above, it is almost inconceivable that an average consumer would not now regard unauthorised overdraft charges as part of that bargain.
6. Do you have evidence of contingent, ancillary or non-transparent charges arising in other sectors beyond personal current accounts which, in your view, would be assessable for unfairness in relation to the level of the charge if the law was changed?
As explained, the evidence does not exist with regard to personal current accounts. We do not comment on other sectors beyond financial services, and have no expertise regarding them.
7. If so, do you think these charges are unfair and if so, why?
Please see answer to question 6.
8. What would the impact be on your sector or your business in terms of its pricing policy if the law was changed to allow the level of all contingent, ancillary or non-transparent charges to be assessed by the Courts for fairness?
The Call for Evidence fails to identify any such charges in our sector. In broad terms, however, (if the question is intended to address unauthorised overdraft charges) such a change in the law would (i) amount to price control, (ii) detract from consumers’ responsibilities, and (iii) run counter to the interests of the large majority of consumers who manage their affairs prudently, in credit or keeping within authorised overdraft limits. These observations may also be valid in respect of other charges.
9. Are there any other potential consequences or wider impacts of allowing the assessment of contingent, ancillary or non-transparent charges for fairness?
See above answers. Regarding personal current accounts and unauthorised overdraft charges, the Call for Evidence fails to make a valid case for any change in the law. It would be sensible to allow the transparency exercises being carried out by providers and the OFT to complete and have time to bed in before reviewing the matter further. Therefore, we believe that the UK position in Europe should be one of no change.
